DEC  30     Wic 


THE 


isintegration  of  Monopoly 

and  other  Articles 


^  i  ;?* « -A  i.^  ^ "' 


By 

SAMUEL  RUSSELL 

Author  of 

"Limitations  of  the  Income  Tax*' 

' '  Progressive  Po  litics ' ' 

Etc. 


SALT  LAKE  CITY 
1913 


Contents 


I.  THE  DISINTEGRATION  OF  MONOPOLY 3 

Tariff   and   Trusts 3 

State  Action  Against  Trusts 8 

Lafc».>r  Unions    13 

Restraint   of  Trade 14 

Monopolies 17 

The  Sherman  Law 19 

Federal   Incorporation    24 

Monopoly  of  Profits  28 

Watered  Stock    31 

Proper  Units  of  Integration 35 

Means  of  Disintegration   35 

II.  A  COMPETITIVE  TARIFF   40 

III.  A  NEW  SYSTEM  OF  FEDERAL  BANKS 50 

Federal  Currency 53 

IV.  OUTLINES    FOR    THE    ORGANIZATION    OF    LOCAL 

GOVERNMENT   58 

Political  Divisions    58 

Taxation   59 

Elections    60 

Counties     62 

Judiciary:  \ .'. \/  :•  r.** •  •  •  ^ ^^ 

Legislature^  .,.,. . . .  .^ .* .^...^ 63 


Copyright,  1913,  by  Samuel  Russell. 


The  Disintegration  of  Monopoly. 


The  tariff  and  the  trusts  are  vaguely  associated  in  the 
public  mind  as  having  a  causal  relation.  It  is  true  they 
have  a  contemporary  presence  in  our  politics,  and  while 
both  the  tariff  and  the  trusts  affect  commodity  prices  in 
our  markets  to  the  restriction  of  competition  and  en- 
hancement of  profits,  yet  it  is  not  true  that  there  is  the 
direct  relation  between  the  tariff  and  the  trusts  which  is 
generally  assumed.  Indeed  it  may  be  said  that  the  most 
notable  of  our  trusts,  the  Standard  Oil  Company  and  the 
American  Tobacco  Company,  could  in  no  wise  have  been 
affected  by  the  let  or  hindrance  of  the  tariff  of  duties  on 
importations.  The  steel  and  iron  industry  has  been  stim- 
ulated and  sustained  by  the  tariff  as  advocated  by  the 
Pennsylvania  school  of  protection,  yet  it  must  be  said  that 
the  protective  tariff  has  not  been  an  important  contribu- 
tory factor  in  the  organization  of  the  steel  trust  or  the 
United  States  Steel  Corporation  as  it  is  properly  desig- 
nated. And  it  is  right  at  this  point  that  there  must  be  a 
clarifying  of  ideas  before  progress  can  be  made  in  the  dis- 
integration of  monopolies  as  exemplified  in  the  highly 
organized  and  integrated  combinations  of  capital  and  con- 
trol which  have  had  such  notable  manifestation  in  recent 
American  industrial  enterprise. 

The  preferential  discrimination  which  the  tariff  gives 
to  the  home  producer  in  the  American  market  operates 
equally  in  favor  of  both  small  and  large  producers.  A  re- 
duction of  prices  attendant  upon  a  reduction  of  the  tariff 
would  reduce  the  profits  of  the  industry  affected,  but  such 
reduction  of  profits  would  have  a  relatively  equal  effect  on 
both  small  and  large  enterprises  and  would  not  tend  di- 


273594 


4  DISINTEGRATION  OF  MONOPOLY. 

rectly  to  the  breaking  up  of  combinations,  unless  it  be 
that  the  increased  efficiency  required  by  new  foreign  com- 
petition would  make  industrial  operation  in  smaller  units 
more  economical  and  profitable.  The  problem  of  the  trusts 
is  a  problem  quite  apart  from  that  of  the  tariff  and  while 
there  should  be  a  permanent  tariff  policy,  a  way  must  be 
devised  for  the  restraint  and  disintegration  of  monopoly 
quite  apart  from  the  tariff  on  imports  for  the  purposes  of 
levying  revenue  to  maintain  the  operations  of  the  govern- 
ment. To  say  that  the  trust  problem  has  not  a  predom- 
inating relation  to  the  tariff  is  not  to  say,  however,  that 
the  trust  problem  has  not  an  intimate  relation  to  the  fiscal 
policy  of  the  federal  government.  It  most  assuredly  has, 
for  the  trusts  have  an  intimate  relation  to  the  industry  and 
commerce  of  the  country  upon  which  the  constitutional 
powers  of  the  federal  government  were  especially  designed 
to  operate. 

The  trusts  were  an  important  process  in  the  develop- 
ment of  monopolistic  corporate  promotion  in  the  United 
States,  the  ultimate  form  of  which  has  become  the  financial 
or  securities  holding  corporation.  Even  the  holding  cor- 
poration has  been  more  highly  integrated  into  the  oper- 
ating corporation  in  which  have  been  actually  merged  the 
constituent  corporations  which,  under  the  trust  system  of 
combination  placed  their  several  stocks  in  the  hands  of 
common  trustees,  who  determined  the  policy  of  the  com- 
bination, collected  profits  and  disbursed  dividends  of  the 
same  to  the  holders  of  the  trust  certificates.  The  more 
primitive  forms  of  combination  such  as  pools,  associations 
and  gentlemen's  agreements,  while  prevalent  in  local  com- 
munities, are  no  longer  in  vogue  for  large  monopolistic 
enterprise. 

A  remarkably  clear  statement  of  the  trust  process  in 
monopolistic  combination  was  made  more  than  twenty 
years  ago  in  a  notable  speech  by  Hon.  Wm.  L.  Wilson  of 
West  Virginia,  in  the  House  of  Representatives.  This 
was  during  the  first  session  of  the  Fifty-first  Congress,  on 
May  1st,  1890.    The  perspective  of  subsequent  experience 


TARIFF  AND  TRUSTS.  5 

makes  this  statement  the  more  valuable  as  a  conception 
of  the  trust  process,  a  correct  and  precise  understand- 
ing of  which  is  necessary  to  an  effective  solution  of  the 
trust  problem.     Mr.  Wilson  said: 

"In  general  terms  we  all  know  that  a  trust  is  the  latest  and  most 
perfect  form  of  combination  among  competing  producers  to  control 
the  supply  of  their  products  in  order  that  they  may  dictate  the  terms 
on  which  they  shall  sell  in  the  market,  and  may  secure  release  from 
stress  of  competition  among  themselves, '  From  the  very  beginning  of 
trade,  perhaps,  certainly  in  all  its  known  history,  there  have  been 
various  forms  of  combination,  and  we  have  long  been  familiar  with 
them  in  this  country  under  the  name  of  pools,  corners,  combines  and 
the  like.     *     *     * 

"A  combination  or  pool  is  a  voluntary  association  depending  upon 
the  good  faith  of  the  parties  associated  and  carrying  with  it  those  ele- 
ments of  weakness  and  disintegration  that  necessarily  belong  to  a  vol- 
untary association.  A  trust  is  a  legal  consolidation  of  properties,  a 
legal  concentration  of  control.  Historically,  it  grew  out  of  the  great- 
ness and  the  necessities  of  the  Standard  Oil  combination.  *  *  *  * 
Accordingly  the  able  solicitor  of  the  Standard  Oil  alliance  worked  out 
for  that  aUiance  the  trust  scheme  of  combination  which  has  subse- 
quently swept  the  field  of  American  industry  and  has  been  adopted 
with  greater  or  less  success  by  so  many  would-be  monopolies.  *  *  * 
"The  shares  of  stock  in  these  various  state  corporations  were  then, 
to  be  transferred  by  the  holders  of  the  stock  to  the  legal  ownership 
of  nine  trustees,  who,  in  return  therefor,  gave  the  owners  of  stock  in 
the  several  companies,  certificates  of  stock  in  the  Standard  Oil 
trust.     *    *    * 

"It  was  soon  discovered  that  the  trust  scheme  devised  for  the  pur- 
pose of  an  existing  combination,  offered  a  new  and  admirable  scheme 
for  forming  monopolies  out  of  existing  competitors,  and  it  spread  with 
rapidity  as  soon  as  its  form  became  divulged.     *     *     * 

"I  have  said  this  much  to  show  that  the  common  basis  of  the 
trusts  is  the  corporation.  The  deed  under  which  the  sugar  trust  was 
organized  required  that  all  the  refineries  should  first  become  corpora- 
tions, and  that  all  subsequent  applications  for  admission  should  qual- 
ify themselves  in  like  manner.  Indeed  it  may  be  affirmed  that  no 
permanent  trust  can  be  built  on  a  less  solid  basis.  Combinations  very 
effective  for  some  temporary  purpose  or  within  a  limited  area,  may  be 
formed  by  individuals  or  partnerships,  but  they  will  be  subjected  to 
all  the  contingencies  of  death,  bankruptcy,  bad  faith,  and  voluntary 
withdrawals.  Those  which  are  to  become  a  menace  to  the  public  can- 
not be  built  upon  a  foundation  so  shifting.     *     *     *     We  all  know  that 


6  DISINTEGRATION  OF  MONOPOLY. 

the  individual  has  disappeared  in  the  corporation  which  alone  offers 
the  aggregation  of  means,  the  exemption  from  physical  death,  and 
the  unity  of  control  that  are  indispensable  for  the  gigantic  enterprises 
of  modern  production  and  trade.     *     *     * 

"If,  therefore,  the  organization  of  a  trust  must  have  the  corpor- 
ation as  its  basis,  it  is  clear  that  the  first  and  most  effective  blow 
must  be  struck,  not  by  congress,  but  by  the  states. 

"The  states,  not  congress,  grant  the  charters  for  these  corpora- 
tions. It  is  at  once  their  duty,  and  it  is  easily  and  clearly  within  the 
sphere  of  their  lawful  power,  to  supervise  the  creatures  which  they 
bring  into  being,  so  as  to  prevent  the  franchises  granted  by  the  peo- 
ple from  being  used  for  the  oppression  and  detriment  of  the  people. 
The  courts  of  New  York  have  already  shown  how  this  may  be  done. 
In  the  proceeding  against  one  of  the  companies  that  went  into  the 
sugar  trust.  Judge  Barrett  held  that  a  corporation  has  no  authority^ 
to  enter  into  a  partnership  or  combination  of  that  kind  and  by  the 
mere  act  of  doing  so  forfeited  its  charter.     *     *     * 

"And  now,  what  can  the  federal  government  do  for  suppressing,  or. 
at  least  rendering  harmless,  these  new  and  dangerous  monopolies 
When  it  has  recourse  to  the  criminal  law  and  seeks  to  destroy  them  by 
pains  and  penalties,  its  lawful  authority  is  limited  to  interstate  trade, 
except  when  legislating  for  the  district  of  Columbia  and  the  terri- 
tories. If  any  one  supposes  that  such  a  bill  as  this  (the  Sherman  Act) 
no  matter  how  severe  the  punishment  it  threatens,  or  how  sweeping 
may  be  its  prohibitions,  will  prevent  such  combinations  as  it  seeks  to 
destroy,  he  does  not,  I  fear,  understand  the  structure  and  operation  of 
trusts.  How  would  such  a  law  reach  the  Standard  Oil  Trust  or  ma- 
terially interfere  with  its  operations?  Had  not  the  members  of  that 
great  alliance  the  legal  right  to  vest  the  various  properties  and  the 
businesses  they  already  had  in  the  name  of  nine  trustees? 

"The  trustees  of  the  sugar  trust,  when  put  upon  the  witness  stand, 
denied  that  they  exercised  any  functions  except  receiving  profits  and 
distributing  dividends.  They  denied  all  privacy  with  contracts,  com- 
binations or  conspiracies,  and  how  can  you  prove  guilt  upon  them 
under  t"he  rules  of  evidence  required  in  criminal  proceedings? 

"Now  you  are  not  going  to  have  a  trust  formed  unless  the  trust 
can  control  and  practically  monopolize  the  production  or  sale  of  some 
article  in  this  country — some  article,  I  might  add,  of  universal  or  com- 
mon consumption,  as  I  have  described.  It  is  a  combination  for  the 
very  purpose  of  forming  a  monopoly,  and  to  form  a  monopoly  it  must 
be  possible  to  do  away,  as  nearly  as  may  be,  with  competition. 

"You  cannot',  therefore,  form  a  trust  in  articles  of  which  the  pro- 
ducers are  scattered  all  over  the  country;  but  any  article,  like  sugar, 
the  refining  or  manufacturing  of  which  can  be  concentrated  in  a  few 
or  in  a  moderate  number  of  establishments,  can  be  consolidated  into 


TARIFF  AND  TRUSTS.  7 

a  trust  that  will  have  a  monopoly  of  the  home  market  unless  there  be 
sources  of  supply  outside  the  trust.  Now,  sir,  it  is  just  here  that  the 
federal  government,  by  its  system  of  import  duties,  already  prohibitory 
as  to  many  articles  of  common  consumption,  and  soon  to  be  made  so 
as  to  others,  presents  the  most  favorable  and  tempting  field  in  the 
world  for  the  successful  formation  and  growth  of  trusts." 

With  the  recommendations  of  Mr.  Wilson  we  are  not 
specially  concerned.  He  was  one  of  those  who  believed 
that  the  tariff  was  the  mother  of  trusts,  a  view  which  has 
become  traditional  with  his  political  successors.  His  ob- 
servations on  state  action  refer  especially  to  the  North 
River  Sugar  Refining  case  in  the  Court  of  Appeals  of 
New  York.  The  work  of  General  Roger  A.  Pryor  in  this 
case  was  a  remarkable  achievement  in  the  anti-trust  move- 
ment. Mr.  Pryor  was  truly  a  pioneer  in  securing  the  appli- 
cation of  judicial  remedies  to  the  evils  of  the  trusts. 

But  Mr.  Wilson  rather  advocated  the  removal  of  the 
tariff  on  sugar  as  the  proper  means  for  reducing  the  sugar 
trust.  It  is  presently  asserted  that  the  sugar  trust  ad- 
vocates free  importation  of  raw  sugar  and  supports  the 
proposed  free  sugar  policy  of  the  government.  There  is 
no  leading  government  which  does  not  raise  a  revenue  out 
of  the  consumption  of  sugar.  And  from  a  purely  revenue 
view,  it  is  clear  that  as  between  the  annual  saving  of  forty 
cents  per  capita  to  the  people  and  the  deprivation  of  the 
federal  treasury  of  annual  revenues  to  the  extent  of  forty 
millions  of  dollars,  that  the  balance  of  sound  policy  and 
convenience  is  in  favor  of  the  retention  of  the  duty  on 
sugar.  The  principal  result  of  the  free  sugar  policy  will 
be  the  absorption  into  the  treasuries  of  the  refining  com- 
panies, of  the  money  presently  paid  to  the  government  in 
revenues.  The  abrogation  of  a  moderate  duty  on  a  com- 
modity of  wide  consumption  does  not  appreciably  affect 
the  price  to  the  consumer,  but  is  of  great  benefit  to  the 
monopolistic  producers  of  such  commodities  and  of  equal 
deprivation  to  the  federal  treasury  in  loss  of  revenues. 
There  ought  to  be  a  permanent  specific  duty  on  sugar  of 
one  cent  per  pound,  and  rather  than  a  gradual  abrogation 


8  DISINTEGRATION  OF  MONOPOLY. 

of  this  duty,  there  ought  to  be  an  excise  on  domestic  sugar, 
which,  by  graduation,  in  cumulative  tenths  should  ap- 
proach the  impost  on  foreign  sugar.  A  true  conservation 
of  resources  in  the  levy  of  revenue,  requires  that  the  annual 
labor  and  profits  of  the  country  contribute  to  the  revenues 
in  preference  to  the  principal  of  accumulated  v^ealth  and 
capital. 

State  Action  Against  Trusts. 

It  is  true  that  the  states  separately  charter  the  indus- 
trial corporations  v^hich  combine  by  trusts  and  mergers 
mto  monopolistic  institutions.  And  there  is  much  that  can 
and  should  be  done  by  the  separate  states  to  regulate 
corporations  created  under  state  law,  or  admitted  to  do 
business  under  state  license.  There  are  no  essential  limi- 
tations on  the  political  rights  and  powers  of  the  states  to 
deal  with  these  questions  as  they  concern  themselves. 
They  may  not  confiscate  property  except  as  a  penalty  for 
delinquency  or  crime,  but  the  vested  right  to  property  does 
not  include  the  right  to  hold  it  in  jointure,  trust,  or  mort- 
main, or  to  use  it  in  association  or  combination  with  oth- 
ers. Combination,  either  for  the  tenure  or  the  use  of 
property,  is  not  a  natural  but  rather  a  conventional  right, 
and  associations  for  the  holding  or  use  of  property  ought 
not  to  be  licensed  except  for  social  and  public  purposes. 
Corporations  as  such  have  no  personal  or  natural  rights, 
but  only  the  conventional  rights  conferred  by  law.  And 
it  is  right  here  that  it  should  be  understood  that  much  of 
the  desperation  displayed  by  the  people  against  corporate 
power,  has  had  its  genesis  in  the  idea  that  corpora- 
tions as  such  were  within  the  protection  of  the  Bill  of 
Rights.  And  we  do  need  a  corporation  code  of  penal  stat- 
utes, which  shall  apply  to  these  associations,  laws  of  con- 
duct, liability  and  responsibility  which  are  not  possible  to 
apply  to  natural  persons  for  the  protection  of  whose  na- 
tural liberties  the  bill  of  rights  was  incorporated  into  our 
organic  laws  and  constitutions.     The  conventional  rights 


STATE  ACTION  AGAINST  TRUSTS.  9 

of  corporations  ought  to  be  the  limit  of  their  powers.  This 
is  properly  the  field  of  state  police. 

As  relates  to  corporate  monopolies  the  state  of  New 
Jersey  has  made  a  notable  example  in  the  enactment  of 
laws  to  prevent  and  penalize  common  abuses  of  the  cor- 
porate franchise.     These  include  the  following  provisions : 

1.  Defines  trusts  and  provides  penalties  against  the 
same. 

2.  Prohibits  watered  stock. 

3.  Penalizes  incorporation  for  monopoly. 

4.  Prohibits  holding  corporations. 

5.  Limits  issue  of  securities  for  creating  mergers. 

6.  Requires  license  from  Public  Utilities  Commis- 
sion for  merger  of  competing  corporations. 

7.  Prohibits  discrimination  by  corporations  in  the 
prices  of  commodities  as  between  different  communities. 

The  worst  that  may  be  said  of  the  seven  bills  of  New 
Jersey  is  that  they  may  drive  some  predatory  creatures 
into  other  states,  there  to  prey  on  the  people.  But  the 
other  states  have  an  equal  right  and  power  to  take  similar 
legislative  measures  for  their  own  protection.  And  cer- 
tainly there  is  a  field  here  which  is  so  particular  and  local 
that  it  may  only  be  treated  by  local  and  state  police.  Every 
state,  indeed  every  municipal  community,  has  its  combina- 
tions for  the  fixing  of  prices  and  monopolization  of  profits. 
These  have  become  a  veritable  imperium  in  imperio  in 
most  every  trading  community.  Every  master  artisan  or 
craftsman  who  does  not  belong  to  the  order  is  denomi- 
nated a  "pirate  in  the  business."  There  is  a  conspiracy  to 
prevent  his  competition  in  the  trade,  and  to  keep  him  from 
obtaining  credit  of  money  or  materials  for  use  in  his 
business.  It  is  frequently  impossible  for  such  outsiders  of 
whatever  artistic  competency  to  purchase  supplies  and 
material.  These  are  prevalent  and  malignant  conditions 
in  many  of  our  cities.  These  conspiracies  are  local  and  fre- 
quently of  more  immediate  and  direct  harm  to  the  people, 
than  combinations  of  wider  extent  and  activity.  These 
traders  and  artisans  all  operate  under  the  license  of  the 


10  DISINTEGRATION  OF  MONOPOLY. 

state  or  some  subordinate  body  politic.  Their  licenses 
should  be  revoked  for  discrimination  as  between  patrons 
and  purchasers,  and  for  participation  in  conspiracy  to  fix. 
prices  and  to  persecute  those  who  may  not  be  parties  to 
their  associations.  And  yet  how  little  progress  we  have 
made  in  the  solution  of  these  distinctively  local  trade  prob- 
lems. Remedy  is  indeed  difficult  of  application,  but  the 
long  standing  of  the  abuse  may  be  brought  home  by  pres- 
ent experience  in  the  perspective  of  a  statement  made  by 
Adam  Smith  in  1776: 

"People  of  the  same  trade  seldom  meet  together,  even  for  merri- 
ment and  diversion,  but  the  conversation  ends  in  a  conspiracy  against 
the  public  or  in  some  contrivance  to  raise  prices.  It  is  impossible,  in- 
deed, to  prevent  such  meetings  by  any  law  which  either  could  be  exe- 
cuted, or  would  be  consistent  with  liberty  and  justice.  But  though  the 
law  cannot  hinder  people  of  the  same  trade  from  sometimes  assem- 
bling together,  it  ought  to  do  nothing  to  facilitate  such  assemblies; 
much  less  to  render  them  necessary." 

The  feeling  of  the  consuming  public  against  combina- 
tions of  merchants  is  not  wholly  due  to  prejudice.  It  is 
founded  on  experience  quite  as  much  as  upon  tradition. 
The  traditional  view  is  thus  stated  by  Thomas  Jefferson 
in  a  letter  to  Horatio  G.  Spafiford,  March  17,  1814: 

"But  merchants  have  no  country.  The  mere  spot  they  stand  on 
does  not  constitute  so  strong  an  attachment  as  that  from  which  they 
draw  their  gains." 

The  interest  of  those  who  busy  themselves  for  profit 
is  not  common  with  that  of  those  from  whose  consump- 
tion and  labor  the  profits  are  drawn.  To  quote  again  from 
Adam  Smith : 

"The  interest  of  the  dealers,  however,  in  any  particular  branch  of 
trade  or  manufacture,  is  always,  in  some  respects,  different  from,  and 
even  opposite  to,  that  of  the  public.  To  widen  the  market  and  to  nar- 
row the  competition,  is  always  the  interest  of  the  dealers.  To  widen 
the  market  may  frequently  be  agreeable  enough  to  the  interest  of  the 
public,  but  to  narrow  the  competition  must  always  be  against  it,  and 


STATE  ACTION  AGAINST  TRUSTS.  11 

can  serve  only  to  enable  the  dealers,  by  raising  their  profits  above 
what  they  naturally  would  be,  to  levy,  for  their  own  benefit,  an  absurd 
tax  upon  the  rest  of  their  fellow  citizens.  The  proposal  of  any  new 
law  or  regulation  of  commerce  which  comes  from  this  order,  ought 
always  to  be  listened  to  with  great  precaution,  and  ought  never  to  be 
adopted  till  after  having  been  long  and  carefully  examined,  not  only 
with  the  most  scrupulous  but  with  the  most  suspicious  attention.  It 
comes  from  an  order  of  men  whose  interest  is  never  exactly  the  sam^ 
with  that  of  the  public,  who  have  generally  an  interest  to  deceive  and 
even  to  oppress  th?  public,  and  who  accordingly  have,  upon  many 
occasions,  both  deceived  and  oppressed  it." 

It  may  be  observed,  in  passing,  that  Thomas  Jefferson 
said  of  Adam  Smith :  "In  political  economy,  I  think 
Smith's  Wealth  of  Nations'  the  best  book  extant." 

These  community  problems  are  in  fair  way  of  pro- 
gressive settlement  by  the  awakened  civic  conscience  and 
activity  which  is  addressing  itself  directly  to  the  improve- 
ment of  municipal  government  and  the  amelioration  of 
social  conditions  in  the  cities.  The  progress  attendant  up- 
on the  commission  form  of  government  in  the  smaller 
cities  in  the  development  of  a  unified  civic  spirit  to  the  ex- 
clusion of  factionalism  and  partisan  pride,  has  already 
been  notable.  Public  markets  are  being  established,  to 
which  may  be  added  municipal  clearing  houses  for  the  reg- 
istration of  claims;  the  deposit,  transfer  and  exchange  of 
earned  credits,  and  the  merger  and  discharge  of  debts, 
together  with  the  proscription  of  petty  debtors,  with  pro- 
vision for  the  preferential  employment  of  debtors,  who 
are  able  and  willing  to  work  to  acquire  credits  to  liquidate 
and  discharge  their  debts  and  thus  restore  and  maintain 
their  creditable  standing  in  the  economic  and  business 
community.  Such  a  public  clearing  house  would  facili- 
tate the  circulation  of  labor  and  commodities  and  promote 
necessary  and  healthful  industry. 

There  is  perhaps  not  a  community  where  the  distribu- 
tion of  the  daily  food  to  the  people  is  not  rendered  more 
costly  by  the  inefificient  employment  of  too  many  persons, 
all  of  whom  are  striving  to  squeeze  profits  out  of  the  con- 
suming public,  and  often  are  driven  to  conspiracy  and  com- 


12  DISINTEGRATION  OF  MONOPOLY. 

bination  to  accomplish  this  result.  The  brokerage  and 
retail  of  commodities  of  wide  general,  use  may  perhaps  be 
a  proper  community  undertaking.  The  consumption  of 
coal,  gas,  lighting  and  other  commodities  and  service,  is 
sufficiently  large  in  any  community,  as  to  make  the  distri- 
bution of  such  commodities  and  services  to  the  consuming 
public  a  matter  of  public  concern.  It  may  be  that  exclu- 
sive annual  franchises  for  the  supply  of  such  commodities 
and  service,  could  be  let  to  those  v^ho  offer  the  best  ser- 
vice at  the  lowest  stipulated  rate,  and  thus  the  waste  of 
an  inefficient  and  cumbersome  machine  of  distribution  be 
avoided  and  saved  to  the  community.  But,  these  are  prob- 
lems which  must  be  worked  out  by  each  civic  community 
for  itself,  and  experimentation  by  the  free  will  of  the  peo- 
ple of  such  communities  ought  not  to  be  unduly  hindered 
or  restrained. 

Wherever  an  exclusive  franchise  is  given — exclusive 
within  the  local  territory  in  which  the  franchise  may  be 
exercised — the  public  authority  has  the  right  to  fix  tolls 
and  prices.  This  is  a  practice  which  was  established  be- 
fore we  heard  so  much  about  "unconstitutionality"  in  the 
regulation  of  trade  and  business.  In  Virginia,  before  the 
War,  the  toll  of  grist  mills  was  so  regulated.  It  is  really 
interesting  at  this  day,  to  read  this  ante-bellum  statute : 

"At  every  mill  which  grinds  grain,  whether  the  same  be  estab- 
lished under  an  order  of  court  or  not,  there  shall  be  well  and  truly 
ground  all  grain  brought  to  the  mill  for  the  consumption,  when 
ground,  of  the  person  bringing  or  sending  it  or  his  family,  and  in  due 
turn,  as  the  same  is  brought;  and  there  shall  not  be  taken  for  the 
toll,  more  than  one-eighth  part  of  any  grain  of  which  the  remaining 
part  is  ground  into  meal,  nor  more  than  one-sixteenth  part  of  any 
grain  of  which  the  remaining  part  is  ground  into  hominy  or  malt.  If 
at  any  mill  there  be  a  violation  of  this  section  in  any  respect,  the  pro- 
prietor thereof  shall,  for  every  such  violation,  forfeit  to  the  party 
injured  five  dollars;  but  with  these  provisoes,  that  the  proprietor  shall 
not  be  obliged  to  run  more  than  one  pair  of  stones  to  grind  grain 
brought  to  his  mill  for  the  consumption  of  the  persons  bringing  or 
sending  it,  or  their  families;  and  that  such  proprietor  may  grind  grain 
for  the  consumption  of  his  family  in  preference  to  that  of  others." 

(CODE  OF  VIRGINIA,  1849,  Chapter  LXIII.  Sec.  12.) 


LABOR  UNIONS.  13 


Labor  Unions. 


There  is  a  current  feeling  that  as  between  the  mer- 
cantile fraternity  and  the  labor  unions,  the  consumer  has 
been  ground  as  between  upper  and  nether  millstones. 
But  we  cannot  apply  to  labor  the  same  rule  which  is  ap- 
plied to  goods,  wares  and  merchandise.  The  personality, 
dignity  and  will  of  those  who  labor  forbid  this.  Service 
must  be  voluntary  and  equally  so,  the  will  must  be  free  not 
to  serve.  No  other  condition  is  consistent  with  the  prin- 
ciple of  personal  liberty. 

Though  concert  and  conference  to  fix  prices  and  con- 
trol output  of  commodities  are  properly  outlawed,  the  na- 
tural right  of  men  who  subject  themselves  to  the  employ- 
ment of  other  men,  to  meet  and  associate  and  even  to 
jointly  determine  upon  what  wage  and  terms  they  will 
subject  themselves  to  employment  is  well  within  their  na- 
tural rights.  Men  severally  and  jointly  have  the  liberty 
of  willing  whether  to  work  or  not  to  work.  This  is  a 
natural  right  which  does  not  depend  upon  the  license  or 
franchise  of  the  state. 

It  is  not  necessary  to  enforce  competition  here.  Cu- 
mulative hunger  and  necessity  ultimately  drive  labor  to 
work  on  the  best  available  terms  of  employment.  No 
strike  from  employment  can  be  of  longer  voluntary  dura- 
tion, than  the  supply  of  accumulated  stock,  or  money  to 
sustain  the  strikers.  Unlike  the  capitalist,  the  laborer, 
though  he  combine  with  others,  to  restrict  competition, 
has  no  accumulated  stock  to  support  himself  in  idleness 
and  hunger  will  drive  him  to  work  on  the  best  wages  that 
are  offered.  And  human  hunger  is  a  sufficiently  potent 
distintegrator  of  labor  combinations  aiming  at  monopoly. 
Then,  too,  there  are  the  laws  which  require  indemnity 
for  the  breach  of  contracts  and  which  prohibit  boycotts 
and  penalize  conspiracies  to  commit  crime  and  forbid  the 
unlawful  use  of  force,  intimidation  or  duress. 

Labor  unions  as  co-operative  associations  of  men  for 


14  DISINTEGRATION  OF  MONOPOLY. 

social  endeavor,  have  made  notable  contribution  to  the 
economic  amelioration  and  moral  improvement  of  those 
who  labor  and  for  this  social  service  should  receive  public 
approbation.  As  a  consumer,  labor  wants  lower  prices 
and  higher  wages,  but  where  wages  are  appreciated  these 
higher  wages  reflect  themselves  in  the  increased  price  of 
goods  of  which  those  who  labor  are  the  greatest  consum- 
ers, and  thus  labor  sustains  in  part,  at  least,  the  enhanced 
cost  of  wages. 

It  is  competition  between  capitalists  and  combina- 
tion between  laborers  that  will  most  effectually  reduce  the 
share  of  capital  in  the  profits  of  industry,  with  the  largest 
diffusion  of  benefits  to  the  consuming  public  in  which  the 
laborers  have  a  clear  preponderance  of  numbers.  As 
wealth  or  capital  increases,  the  tendency  is  for  its  profits 
to  become  less  and  conspiracy  and  combination  against 
the  consuming  public  is  contrived  to  increase  and  insure 
the  profits  of  capital. 

Restraint  of  Trade. 

And  it  it  right  here  that  considerable  confusion  has 
resulted  as  to  the  proper  relation  of  industrial  labor  and 
capital  to  competition.  Restraint  of  trade,  as  that  phrase 
is  known  to  the  common  law,  was  applied  to  certain  con- 
tracts whereby  natural  persons — usually  traders  or  arti- 
sans— bound  themselves  by  contract  not  to  exercise  their 
craft  or  trade  within  the  realm.  These  contracts  were 
declared  void  by  the  courts;  that  is  to  say,  upon  the  vol- 
untary breach  of  such  contracts,  the  courts  refused  to 
award  damages  to  the  complaining  party  because  as  the 
courts  said,  such  contracts  were  void  as  against  public 
policy  and  the  breach  of  the  same  would  not  sustain  an 
action  at  law  to  recover  damages.  But  there  was  no  pen- 
alty for  the  voluntary  retirement  of  a  natural  person  from 
the  exercise  of  his  trade.  The  matter  could  only  come 
before  the  courts  when  some  person,  who  had  agreed  that 
he  would  not  exercise  his  trade,  should  be  impleaded  on  a 


RESTRAINT  OF  TRADE.  15 

charge  that  he  had  exercised  his  trade  in  breach  of  an 
agreement  not  to  do  so.  The  courts  simply  refused  to 
entertain  such  cases  on  the  ground  that  it  was  a  natural 
right  for  a  person  to  exercise  his  trade;  that  it  was  in  the 
public  interest  that  he  should  do  so;  that  contracts  which 
restrained  a  person  in  respect  to  the  exercise  of  his  craft 
or  trade,  were  void  as  against  the  public  interest  and  pol- 
icy; that  a  person  had  a  perfect  right  to  break  such  con- 
tracts and  exercise  his  craft  or  trade;  and  if  he  were  sued 
at  law  for  so  doing,  the  courts  would  not  entertain  the 
suit — they  would  just  throw  it  out  of  court  as  we  would 
express  it  in  common  parlance.  And  this  is  about  all  there 
was  to  the  common  law  doctrine  as  to  contracts  in  re- 
straint of  trade.  Certainly  in  these  days,  there  are  no 
considerable  evils  resulting  from  men  making  voluntary 
contracts  that  they  will  not  work  or  engage  in  business. 
The  prevalent  restraints  on  the  freedom  and  equality  of 
competition  are  of  an  entirely  different  character  and  call 
for  the  application  of  an  entirely  dififerent  correction.  The 
evils  from  such  personal  contracts  are  quite  negligible; 
indeed,  they  bear  no  pertinent  relation  to  contemporary 
industrial  and  economic  problems. 

And  now  a  word  in  passing  as  to  "reasonable  restraint 
of  trade,"  another  phrase  of  supposed  mysterious  meaning. 
When  a  trader  or  an  artisan  had  established  himself  in 
the  good  will  of  his  patrons,  customers  and  clients,  all  of 
which  made  his  business  valuable,  and  he  sold  out  his  bus- 
iness to  another  and  agreed  in  a  covenant  collateral  to  the 
sale,  that  he  would  not  engage  in  his  old  business  in  the 
same  town  but  would  leave  his  successor  free  to  trade  in 
the  same  field,  without  the  withdrawal  of  trade  and  cus- 
tom by  the  continued  engagement  of  the  seller  in  business 
in  the  same  town;  such  a  contract  restraining  the  seller 
in  the  exercise  of  his  trade  among  his  old  customers  was 
denominated  a  "reasonable"  contract  and  such  a  restraint 
was  held  to  be  a  "reasonable  restraint  of  trade"  and  not 
sufficiently  contrary  to  public  policy  to  declare  it  to  be 
void.     The  person  who  had  engaged  to  refrain  from  trade 


16  DISINTEGRATION  OF  MONOPOLY. 

in  the  town  where  the  business  he  had  sold  was  developed, 
was  free  to  trade  in  any  other  town  in  the  realm,  but  if 
he  should  exercise  his  trade  in  the  old  town,  to  the  dam- 
age of  the  business  he  had  sold,  then  he  could  be  sued  at 
law  for  damages  and  a  court  of  equity  might  also  issue  its 
injunction  to  prevent  him  from  trading  in  that  town  in 
breach  of  his  contract  not  to  do  so.  And  this  is  about  all 
there  is  to  "reasonable  restraint  of  trade."  If  a  physician 
sell  his  professional  practice  to  another  and  make  an  agree- 
ment by  which  he  binds  himself,  not  to  practice  in  that 
town,  by  virtue  of  which  the  courts  may  restrain  him  from 
so  doing,  the  fact  that  he  has  to  go  to  some  other  town 
to  practice  medicine  is  quite  wholly  a  private  matter.  Cer- 
tainly it  is  not  of  sufficient  public  interest  as  to  call  for 
the  interposition  of  the  legislature. 

Restraints  on  the  jus  disponendi  or  right  of  alienation 
of  property  created  by  deed  or  devise  granting  or  convey- 
ing the  property  were  at  common  law  held  to  be  void  ex- 
cept in  the  case  of  married  women,  in  which  instance,  the 
restraints  created  by  the  donor  of  the  propert}^  were  upheld 
during  the  coverture  of  marriage. 

These  contracts — those  which  were  void  and  those 
which  were  reasonable — were  contracts  which  related 
quite  exclusively  to  personal  services,  trading  and  business, 
and  have  little  or  no  relation  to  current  problems  in  pub- 
lic policy  and  economy.  It  is  no  wonder  that  the  straining 
to  elucidate  them  in  their  application  to  modern  problems 
has  not  resulted  in  any  satisfactory  explication  or  discovery 
as  to  what  they  properly  have  to  do  with  either  trusts  or 
monopolies.  For  these  arise  from  entirely  different  causes 
and  contracts,  and  by  entirely  different  legal  and  business 
methods  and  practices.  Neither  "restraints  of  trade"  nor 
"restraints  of  alienation,"  as  these  terms  were  used  at  the 
common  law,  have  any  relation  to  the  combinations  and 
conspiracies  to  engross  and  monopolize  trade  that  are  pres- 
ently the  chief  concern  of  our  politics. 

We  have  been  on  the  wrong  track.  It  is  not  the  vol- 
untary contractual  restraint  of  trade  in  personal  business, 


MONOPOLIES.  17 

it  is  the  engrossment  of  trade  in  commodities  that  we  are 
after.  And  what  of  the  common  law  on  interference 
with  markets?  We  have  almost  forgotten — lawyers  and 
laymen  alike — that  there  is  any  common  law  on  this  sub- 
ject. What  of  forestalling,  regrating  and  engrossing  at  the 
common  law?  These  words,!  dare  say, have  to  us  a  strange 
and  unusual  sound  and  yet  they  denote  the  doctrines  of  the 
common  law  which  have  the  nearest  relation  to  the  com- 
binations and  conspiracies  for  the  engrossment  of  trade 
which  we  denominate  trusts  and  monopolies. 

"Forestalling  is  to  buy  or  contract  for  any  merchandise  or  victuals 
on  the  way  to  market;  or  to  dissuade  persons  from  bringing  their 
goods  or  provisions  thither;  or  to  persuade  them  to  enhance  the  price; 
or  by  any  such  devices  to  make  the  market  dearer  to  the  fair  trader 
with  intent  to  raise  the  price." 

"Regrating  is  to  buy  corn  or  other  dead  victuals  in  any  market, 
and  to  sell  it  again  in  the  same  market,  or  in  its  neighborhood. 

"Engrossing  is  to  get  into  one's  possession  large  quantities  of 
corn,  or  other  dead  victuals,  with  intent  to  sell  them  again." 

(Synopsis  of  Law  of  Crimes  and  Punishments,  by  John  B.  Minor, 
p.  171.) 

Now  these  are  definitions  of  offenses  at  the  common 
law,  for  which  as  misdemeanors,  penalties  were  provided 
for  prevention  and  punishment.  And  while  forestalling, 
regrating  and  engrossing  were  practices  which  were  pun- 
ishable under  more  primitive  conditions  than  exist  in  in- 
terstate commerce  today,  yet  penalties  for  these  offenses, 
which  interfere  with  the  freedom  of  trade  in  markets, 
might  again  be  applied  to  local  markets  as  they  exist  or 
may  become  established  in  the  cities  and  towns  of  the 
country.  These  common  law  definitions  of  misdemeanors 
go  right  against  some  of  the  most  common  practices  of 
speculators  who  take  unlawful  toll  of  the  trade  in  food 
and  other  commodities  of  general  consumption. 

Monopolies. 

At  the  common  law,  monopolies  could  only  be  cre- 
ated by  franchise  evidenced  by  letters  patent  of  the  king. 
The  law  courts,  however,  refused  to  validate  such  grants 


18  DISINTEGRATION  OF  MONOPOLY. 

or  to  protect  the  patentees  in  the  exercise  of  their  exclu- 
sive privileges. 

Agreements  to  fix  prices,  indeed,  v^ere  void,  but  such 
"gentlemanly  understandings"  then  as  now  seldom  came 
before  the  courts.  If  some  hardy  conspirator  sought  to 
recover  damages  against  one  of  his  fellows  who  had  been 
untrue  to  his  pledges  as  to  prices,  the  courts  simply  re- 
fused to  entertain  the  case — "threw  it  out  of  court"  so  to 
speak.  The  word  "reasonable"  has  never  been  applied  to 
such  arrangements  and  as  to  whether  or  not  the  prices 
so  arranged  were  "reasonable,"  the  courts  have  had  no 
concern.  But  there  was  no  penalty  attached  to  such  agree- 
ments, except,  perhaps,  in  the  case  of  laborers  who  asso- 
ciated to  fix  wages,  as  to  which  associations  there  was  at 
an  early  period  some  repressive  parliamentary  legislation 
which  has  long  since  been  repealed. 

Labor  unions  habitually  adopt  wage  scales.  Such 
agreements,  however,  have  no  legal  sanction  and  are  void. 
The  unions  never  think  of  rushing  into  court  to  ask  dam- 
ages against  a  backslider  who  works  for  less  than  the  union 
scale.  If  they  did  so  the  case  would  simply  be  thrown 
out.  And  although  such  practices  are  common  among 
both  labor  unions  and  mercantile  associations  and  though 
their  agreements  for  a  scale  of  wages  or  of  prices  are  void 
there  are  no  penalties  except  such  as  are  prescribed  by  leg- 
islative statutes,  and  these,  of  course,  of  modern  enactment. 
There  were  no  common  law  criminal  definitions  covering 
such  agreements,  and  even  these  modern  criminal  statutes 
seem  to  have  been  quite  as  innocuous  as  the  common  law 
which  made  no  pretense  to  punish  participation  in  such 
agreements.  The  prevalent  evils  of  monopolistic  combin- 
ation do  not  arise  from  these  merely  executory  personal 
arrangements  as  to  price  maintenance.  They  arise  rather 
as  a  result  of  executed  contracts,  grants  and  conveyances 
respecting  the  ownership,  control  and  use  of  industrial 
property,  to  which  contracts  the  common  law  doctrines 
against  restraint  of  the  personal  right  to  trade  and  re- 


THE  SHERMAN  LAW.  19 

straint  of  the  personal  right  to  alienate  property,  have  no 
application. 

The  Sherman  Law. 

The  most  notable  of  statutory  prohibitions  against 
trusts  and  monopolies  has  been  the  so-called  "Sherman 
Law,"  enacted  by  the  Congress  of  the  United  States  and 
technically  known  as  the  act  of  July  2nd,  1890,  to  protect 
trade  and  commerce  against  unlawful  restraints  and  mon- 
opolies. This  notable  statute  has  been  accredited  to  John 
Sherman,  George  F.  Hoar  and  George  F.  Edmonds,  all 
distinguished  senators  of  the  United  States.  It  has  been 
accepted  as  an  enactment  of  the  common  law  doctrines 
with  respect  to  the  freedom  of  trade,  into  the  federal  law 
of  the  United  States,  as  respects  trade  between  the  states 
and  with  foreign  countries.  Like  the  Statute  of  Frauds, 
its  interpretation  has  cost  a  king's  ransom ;  but  it  must  be 
said  that  even  as  finally  clarified  and  constructed,  the  Sher- 
man Act  will  never  occupy  the  notable  place  in  our  federal 
law  which  the  Statute  of  Frauds  does  in  the  field  of  British 
legislative  jurisprudence. 

Section  One  of  the  Sherman  Act  provides  that  "every 
contract,  combination  in  the  form  of  trust  or  otherwise,  or 
conspiracy,  in  restraint  of  trade  or  commerce  among  the 
several  states  or  with  foreign  nations  is  hereby  declared  to 
be  illegal."  These  words,  indeed,  have  an  impressive  and 
comprehensive  sound,  but  the  fact  is  that  there  never  was 
a  trust  or  combination  which  had  for  its  purpose  the  re- 
straint or  restriction  of  the  volume  of  interstate  or  foreign 
trade,  or  of  the  consumption  which  sustains  this  trade.  In- 
deed the  trusts  have  directly  sought  to  widen  the  market 
and  increase  the  trade  of  consumption,  both  interstate  and 
foreign.  And  all  straining  to  find  in  such  combinations  a 
restriction  of  trade  is  a  vain  endeavor.  It  is  the  engross- 
ment, not  the  restriction  of  trade,  which  has  been  the  mov- 
ing impulse  of  the  trusts.  And  such  combinations  or  trust 
contracts  are  in  no  sense  contractual  restraints  on  the  per- 


20  DISINTEGRATION  OF  MONOPOLY. 

soiial  liberty  of  trade  or  alienation  as  known  to  the  com- 
mon law. 

Section  Two  of  the  Sherman  Act  provides  that  "every 
person  who  shall  monopolize  or  attempt  to  monopolize,  or 
combine  or  conspire  with  any  other  person  or  persons  to 
monopolize  any  part  of  the  trade  or  commerce  among  the 
several  states,  or  with  foreign  nations,  shall  be  guilty  of 
a  misdemeanor,  and,  on  conviction  thereof  shall,  be  pun- 
ished by  fine  not  exceeding  $5,000.00  or  by  imprisonment 
not  exceeding  one  year,  or  by  both  such  punishments  in 
the  discretion  of  the  court." 

Section  Three  is  merely  a  repetition  of  Section  One, 
providing  for  its  application  to  the  District  of  Columbia  and 
the  Territories. 

Section  Four  grants  jurisdiction  to  the  circuit  courts 
of  the  United  States  to  issue  injunctions  to  restrain  viola- 
tions of  the  act.  This  is  an  effectual,  though  very  unusual, 
provision  for  courts  of  equity  to  restrain  the  violation  of 
a  purely  criminal  statute  in  cases  where  private  property 
is  not  being  directly  infringed  or  damaged.  This  sec- 
tion has  been  the  only  vital  one  relating  to  procedure  pro- 
vided in  the  act.  Indictments  under  the  penal  provisions 
of  Sections  One,  Two,  and  Three  have  quite  uniformly 
failed.  The  forfeitures  provided  in  Section  Six  have  never 
been  claimed  or  enforced,  and  the  right  to  sue  for  dam- 
ages by  a  person  privately  aggrieved  or  damaged  by  a  vio- 
lation of  the  act  as  provided  in  Section  Seven  has  not  been 
of  any  extended  practical  utility  to  those  who  have  been 
damaged  by  the  ruthless  and  unequal  competition  and 
practices  of  the  monopolies  which  the  act  purports  to  pro- 
hibit, but  whose  unlawful  methods  and  practices  the  act 
does  not  specifically  define  for  the  purposes  of  either  pub- 
lic punishment  or  private  compensation. 

As  respects  the  definitions  of  the  law  and  the  applica- 
tion of  judicial  injunctions  for  the  dissolution  of  monop- 
olistic combinations,  the  reference  of  the  contracts  and 
trusts  specified  in  Section  One  to  the  monopolies  specified 


THE  SHERMAN  LAW.  21 

in  Section  Two,  would  bring  into  correlation  the  really  im- 
portant and  potential  definitive  parts  of  the  statute : 

"Every  contract,  combination  in  the  form  of  trust  or  otherwise, 
or  conspiracy  *  *  *  ^o  monopolize  any  part  of  the  trade  or  com- 
merce among  the  several  states  or  with  foreign  nations  *  *  ♦  is 
hereby  declared  to  be  illegal." 

This  composite  paragraph,  together  with  the  provision 
for  injunctions  to  dissolve  such  combinations  as  are  de- 
clared illegal  by  the  act,  is  all  there  is  of  vital  signification 
or  utility  in  the  Sherman  Law. 

The  very  lucid  opinion  of  the  supreme  court  in  the 
Standard  Oil  case,  makes  it  clear  that  whether  in  a  partic- 
ular case  a  conspiracy  or  combination  in  the  form  of  trust, 
or  in  other  form,  has  a  conscious  or  casual  intendment  to 
monopoly  must  be  adjudged  upon  the  application  of  the 
processes  of  judicial  rationalism. 

But  there  are  those  who  doubt  the  effectuality  of  the 
decrees  entered  in  the  trust  cases  and  of  the  judicial  means 
adapted  to  their  execution.  Thus  Honorable  Peter  S. 
Grosscup,  referring  to  the  decree  in  the  Northern  Securi- 
ties case,  said : 

"As  a  road  to  restored  individualism  in  trade  and  commerce  it 
(the  Sherman  Act)  led  nowhere;  every  one  of  its  boasted  achieve- 
ments, like  the  Northern  Securities  case,  for  instance,  faded  entirely 
away  the  moment  the  last  line  of  the  decree  had  been  written.  The 
'dissolutions'  were  dissolutions  on  paper  only;  they  produced  no  effect 
either  on  the  conditions  of  trade  or  the  relation  of  individual  men  to 
opportunities  in  trade.  Where  change  followed  at  all,  it  was  in  the 
direction  not  of  individualism,  but  of  more  intensive  concentration — 
the  previous  constituent  corporations  welded  into  single  corporations — 
thereby  replacing  what  in  law  was  a  'combination'  by  what  in  law  was 
a  single  entity  as  in  the  steel  and  other  industries."  (North  American 
Review,  July,  1911.) 

In  the  Northern  Securities  case  the  decree  of  the 
federal  court  dissolved  a  trust  in  which  the  Northern 
Securities  Company  was  corporate  trustee.  In  the  Amer- 
ican Tobacco  case  the  court  dissolved  a  highly  integrated 


22  DISINTEGRATION  OF  MONOPOLY. 

monopolistic  corporation.  Of  this  decree  the  late  Presi- 
dent William  H.  Taft,  in  a  special  message  to  Congress, 
on  December  5th,  1911,  said:  "I  venture  to  say  that  not 
in  the  history  of  American  law  has  a  decree  more  effective 
for  such  a  purpose  been  entered  by  a  court  than  that 
against  the  tobacco  trust."  It  is  currently  believed  that 
the  Honorable,  the  Attorney  General  of  the  United  States, 
does  not  share  this  opinion. 

Against  the  decision  of  a  practically  unanimous  court 
in  the  Standard  Oil  case,  the  Honorable  William  J.  Bryan 
deeply  stirred  his  emotions.    Said  he  : 

**In  the  light  of  this  decision  *  *  *  we  may  as  well  recognize 
that  we  now  have  no  criminal  law  against  the  trusts.     *     *     * 

"Opinion  on  the  trust  question  is  largely  a  matter  of  bias.     It  is  a^ 
question  of  the  heart  as  well  as  the  head.     *     *     * 

"There  are  a  number  of  things  that  impress  one  as  he  reads  the 
majority  and  minority  opinions,  and  the  impression  made  is  so  deep 
that  feeling  increases  with  contemplation." 

And  the  Weekly  Commoner  said  : 

"One  by  one  the  beautiful  passages  of  the  Bible  are  going  out  of 
use  in  plutocratic  society.  It  has  become  necessary  to  drop  them  out 
of  deference  to  tlie  feelings  of  some  of  the  more  sensitive  members  of 
high  financial  circles.  Solomon  said,  'A  good  name  is  rather  to  be 
chosen  than  great  riches,  and  loving  favor  rather  than  silver  and  gold,' 
but  this  is  offensive  to  the  worshipers  of  men  like  Rockefeller. 

"  *No  man  can  serve  two  masters,'  is  good  philosophy,  as  well  as 
good  religion,  but  it  is  objected  to  by  the  friends  of  some  of  the  sen- 
ators. And  now  since  Chief  Justice  White  has  succeeded  in  commit- 
ting eight  members  of  the  court  to  the  position  he  took  fifteen  years 
ago  in  favor  of  judicial  legislation  for  the  protection  of  trusts,  it  may 
be  necessary  to  drop  the  26th  verse  of  the  lltli  chapter  of  Luke:  'Then 
goeth  he  and  taketh  to  him  seven  other  spirits  more  wicked  than  him- 
self, and  they  enter  in  and  dwell  there;  and  the  last  state  of  that  man 
is  worse  than  the  first.'  " 

Of  course  the  Chief  Justice  needs  no  defense  from 
such  aspersions.    He  is  the  peer  of  any  living  jurist. 

Though  William  Jennings  Bryan  thinks  that  the 
Standard  Oil  decision  is  all  v^rong,  William  Howard  Taft 


THE  SHERMAN  LAW.  23 

thinks  it  is  all  right  and  asserts  that  the  contrary  view  "is 
erroneous  and  is  based  on  the  assumed  inefficiency  and  in- 
nocuousness  of  judicial  injunctions."  Among  those  who 
entertain  this  erroneous  view  is  Theodore  Roosevelt,  the 
projector  of  the  commission  form  of  government  for 
trusts.  To  Mr.  Roosevelt  there  are  good  trusts  and  bad 
trusts.  He  would  separate  the  sheep  from  the  goats.  He 
don't  like  goats;  they  don't  shear  well.  But  this  plan  is 
not  original  with  Mr.  Roosevelt.  Unlike  some  other 
things  we  have  heard  of,  it  was  not  discovered  in  the 
laboratory  of  biological  democracy  at  Oyster  Bay.  But 
we  are  progressing  toward  the  commission  form — already 
the  Department  of  Justice,  by  and  with  the  approval  of 
the  circuit  courts,  has  decided  in  particular  cases,  just 
what  may  and  what  may  not  be  done,  and  just  how  it  shall 
be  done.  The  department  has  straightened  out  the  Har- 
riman  Railroads.  The  Powder  Trust,  the  Electric  Lamp 
Trust  and  some  other  trusts  have  obtained  their  several 
prescriptions  from  the  department  and  have  taken  their 
medicine  in  private.  We  have  seen  no  testimonials  as  to 
just  how  these  anti-fat  prescriptions  affect  the  patient. 
And  then  it  is  not  yet  determined  whether  the  real  trouble 
is  physical  or  mental.  Mr.  Taft,  naturally  enough,  thinks 
there  is  nothing  improper  in  being  big  and  Mr.  Roosevelt, 
too,  thinks  that  big  ones  are  all  right,  unless  they  are  evil- 
minded.  To  get  rid  of  the  evil — that  is  the  thing.  As  Mr. 
Taft  says : 

"Mere  size  is  no  sin  against  the  law.  The  merging  of  two  or 
more  business  plants  necessarily  eliminates  competition  between  the 
units  thus  combined,  but  this  elimination  is  in  contravention  of  the 
statute  only  when  the  combination  is  made  for  the  purpose  of  ending 
this  particular  competition,  in  order  to  secure  control  of  and  enhance 
prices  and  create  a  monopoly." 

So  as  Theodore  Roosevelt  would  have  it,  and  as  Wil- 
liam H.  Taft  says,  it  all  depends  on  good  intentions.  Just 
say,  "We  did  not  mean  to  do  it,"  "We  did  not  do  it  on  pur- 
pose," and  you  have  an  eleemosynary  corporation. 


24  DISINTEGRATION   OF  MONOPOLY. 

We  must  pass  from  judicial  to  political  remedies  for 
the  solution  of  the  trust  problem.  There  must  be  a  more 
automatic  and  general  disintegration  of  monopoly  than 
may  be  obtained  by  the  slow  application  of  judicial  injunc- 
tions in  particular  cases.  It  is  claimed,  however,  by  nota- 
ble publicists  that  we  have  reached  the  limit  of  the  appli- 
cation of  the  political  power  of  Congress  for  the  disinte- 
gration of  monopoly.     Hannis  Taylor  expresses  this  view: 

"In  the  United  States  the  transition  from  individualism  to  collec- 
tiveism  has  brought  a  revolution  in  economic  conditions  whose  out- 
come involves  the  right  of  the  National  Government  to  abolish  or 
seriously  modify  trusts  and  monopolies.  Congress  has  exhauste4^s 
legislative  power  and  it  now  remains  for  the  Supreme  Court  to  deter- 
mine whether  or  not  its  eflForts  have  been  efficacious."  (Origin  and 
Growth  of  the  American  Constitution,  Boston,  1911,  page  298.) 

Federal  Incorporation. 

The  most  sanguine  professors  of  the  adequacy  of  the 
Sherman  Act  as  interpreted  by  the  Federal  Supreme  Court 
are  not  without  doubt  as  to  the  ultimate  effectuality  of 
the  statute  for  the  disintegration  of  monopolistic  combina- 
tions and  are  anticipating  more  direct  federal  visitorial 
power  over  corporations  which  may  only  be  realized  by 
the  creation  of  corporations  by  Congress  to  engage  in 
industrial  production  and  commerce.  Thus  President  Taft 
said,  in  a  special  message  to  Congress  on  January  7th, 
1910: 

"If  the  prohibition  of  the  Anti-trust  Act  against  combinations  in 
restraint  of  trade  is  to  be  effectively  enforced,  it  is  essential  that  the 
national  government  shall  provide  for  the  creation  of  national  corpor- 
ations to  carry  on  a  legitimate  business  throughout  the  United  States." 

And  in  his  message  of  December  5th,  1911,  the  Pres- 
ident again  urged  this  view  on  Congress : 

"I  renew  the  recommendation  of  the  enactment  of  a  general  law 
providing  for  the  voluntary  formation  of  corporations  to  engage  in 
commerce  between  the  states  and  with  foreign  countries." 


FEDERAL  INCORPORATION.  25 

Now,  while  the  incorporation  of  railways  under  fed- 
eral law  would  likely  be  of  great  utility  in  the  alignment, 
articulation,  and  systematization  of  ways  for  the  accom- 
modation of  the  traffic  and  commerce  of  the  country,  and 
while  such  an  exercise  of  congressional  police  would  be 
well  within  the  constitutional  power  of  Congress  to  estab- 
lish and  maintain  post  roads,  it  is  to  be  doubted  that  Con- 
gress, under  the  Constitution,  has  any  power  to  erect  cor- 
portations  for  purely  industrial  and  productive  purposes. 
Certainly  such  a  proposition  is  directly  contrary  to  the  rea- 
soning of  Chief  Justice  Marshall  in  Osborne  against  Bank 
of  the  United  States,  9  Wheaton  73S,  wherein  the  power 
of  Congress  to  create  banking  corporations  as  fiscal  agen- 
cies of  the  government  was  upheld  and  wherein  the  Chief 
Justice  says : 

"This  mere  private  corporation  engaged  in  its  own  business,  with 
its  own  views,  would  certainly  be  subject  t6  the  taxing  power  of  the 
state,  as  any  individual  would  be,  and  the  casual  circumstance  of  its 
being  employed  by  the  government  in  the  transaction  of  its  fiscal  affairs, 
would  no  more  exempt  its  private  business  from  the  operation  of  that 
power  than  it  would  exempt  the  private  business  of  any  individual  em- 
ployed in  the  same  manner.  But  the  premises  are  not  true.  The  bank  is 
not  considered  as  a  private  corporation,  whose  principal  object  is  individ- 
ual trade  and  individual  profit;  but  as  a  public  corporation  created  for 
public  and  national  purposes.  That  the  mere  business  of  banking  is, 
in  its  own  nature,  a  private  business,  and  may  be  carried  on  by  indi- 
viduals or  companies,  having  no  political  connection  with  the  gov- 
ernment is  admitted;  but  the  bank  is  not  such  an  individual  or  com- 
pany. It  was  not  created  for  its  own  sake  or  for  private  purposes.  It 
has  never  been  supposed  that  Congress  could  create  such  a  corporation. 
The  whole  opinion  of  the  court  in  the  case  of  McCulloch  against  the 
State  of  Maryland  is  founded  on,  and  sustained  by  the  idea  that  the 
bank  is  an  instrument  which  is  necessary  and  proper  for  the  carrying 
into  effect  of  the  powers  vested  in  the  government  of  the  United 
States.  It  is  not  an  instrument  which  the  government  found  ready 
made  and  has  supposed  to  be  adapted  to  its  purposes;  but  one  which 
was  created  in  the  form  in  which  it  now  appears,  for  national  purposes 
only." 

But  it  is  eminently  true  that  the  trust  problem  is  one 
of  intimate   relation   to  industrial  corporations,  and  that 


26  DISINTEGRATION  OF  MONOPOLY. 

these  corporations  are  erected  by  the  states  and  are  ex- 
clusively subject  as  such  to  the  visitorial  power  of  the  sov- 
ereignties creating  them. 

The  original  Standard  Oil  trust,  and  the  other  trusts 
which  followed  in  its  train  were  created  by  the  placing  of 
the  shares  of  stock  of  the  combining  corporations  in  the 
hands  of  a  common  board  of  personal  trustees  who  would 
vote  the  stock  for  the  unified  direction  of  the  corporations, 
collect  the  profits  of  the  combine  and  declare  dividends 
of  these  profits  to  the  holders  of  the  trust  certificates.  It 
is  likely  that  these  trust  conveyances  could  have  been  dis- 
solved and  recalled  by  the  cestui  que  trustent.  There  is  no 
reason  why  such  shares  of  corporate  stock  should  have 
been  held  in  trust  against  the  will  of  the  beneficiaries  of 
the  trust.  The  trust  was  not  of  such  a  public  or  charitable 
character  as  that  a  court  of  equity  would  sustain  it  against 
the  will  of  the  equitable  owner  of  the  stock.  But  the  trust 
was  created  and  continued  by  the  voluntary  act  and  appro- 
bation of  the  individual  stockholders,  all  of  whom  were 
participators  in  the  combination  of  direction  and  control 
created  by  the  trust.  In  a  smaller  way,  a  corporation  itself 
is  a  trust  wherein  the  stockholders  grant  the  use,  direction, 
and  control  of  corporate  stock  and  property  to  a  board  of 
trustees  or  directors,  to  be  exercised  in  pursuance  of  the 
trusts  set  forth  in  the  articles  of  association,  the  trustees 
or  directors  being  incorporated  and  given  perpetual  suc- 
cession and  corporate  capacity  by  law.  The  holding  of 
stock  in  trust  may  also  be  freely  exercised  by  a  corporate 
trustee  as  the  Northern  Securities  Company,  with  per- 
petual succession  in  the  trustee.  And  there  is  nothing 
generally  in  modern  corporation  law  and  practice  to  pre- 
vent a  monopolistic  corporation,  without  using  the  trust 
method  of  combination,  from  issuing  its  shares  of  stock  in 
payment  for  any  number  of  industrial  plants  and  proper- 
ties, taken  at  appraised  values,  according  to  the  conven- 
tions of  the  parties,  and  with  the  consequent  dissolution 
of  the  former  separate  corporate  owners  of  such  industrial 
property.    Indeed  the  old  combination  by  holding  trustees 


FEDERAL  INCORPORATION.  27 

or  by  the  holding  corporation  has  been  succeeded  in  nota- 
ble instances  by  highly  integrated  corporate  organizations 
under  liberal  corporation  laws  and  by  the  free  contractual 
acts  of  all  persons  concerned.  From  such  combinations 
the  distinctively  trust  feature  may  be  entirely  absent.  It 
•  is  a  significant  fact,  however,  that  in  usual  practice  the 
operating  industrial  units  are  separate  corporations  and 
that  the  combination  of  these  operating  corporations  is 
a  fiscal  and  securities  company,  such  as  the  United  States 
Steel  Corporation,  which,  though  highly  integrated,  re- 
tains the  separate  entity  of  the  constituent  companies  in 
the  monopolistic  financial  corporation.  So  it  may  be  said 
that  the  problem  of  the  disintegration  of  monopoly  is  no 
longer  a  distinctively  trust  problem. 

And  while  The  Seven  Bills  of  New  Jersey  lay  down 
effectual  principles  for  the  exercise  of  visitorial  power  over 
corporations,   such  laws   are  limited  in  operation  to  the 
states  enacting  them  and  which  have  created  the  corpor- 
ations which  are  thereby  to  be  subjected  to  such  visitorial 
power.     The  trend  of  state  corporation  policy,  however, 
has  been  to  forbid  the  creation  of  corporations  by  special 
legislative  charters  and  laws  and  instead  of  being  an  ex- 
clusive franchise,  the  privilege  of  incorporation    has,    by 
general  laws,  been  made  open  to  all  without  discrimination 
or  restraint  as  to  persons,  and  indeed  without  limitation 
with  respect  to  capital,  stock  or  property,  term  of  corpor- 
ate duration,  extent  or  charcter  of  business  or  field  of  op- 
eration, or  of  legal  rights,  power  or  functions — all  in  sup- 
posed conformity  to  the  democratic  and  equal  principles 
of  our  government.     It  is  in  pursuit  of  this  absurd  policy, 
that  the  doctrine  has  been  insinuated  into  political  and  ju- 
dicial thought,  that  corporations  have  the  same  constitu- 
tional rights  as  natural  persons,  and  in  addition  thereto 
the  distinct  powers  and  immunities  peculiarly  incident  to 
corporations.     We  have  had  a  veritable  riot  of  corporate 
promotion  extended  to  all  parts  and  local  jurisdictions  in 
the  country,  and  it  may  not  as  yet  be  known  how  soon 
the  separate  states  will  undertake  to  remedy  the  abuses 


28  DISINTEGRATION  OF  MONOPOLY. 

of  the  corporate  privilege  along  the  lines  laid  down  in 
New  Jersey.  Of  course  every  state  may  regulate  its  own 
domestic  corporations,  as  also  those  foreign  corporations 
which  it  admits  by  its  license  to  do  corporate  business 
within  its  territorial  jurisdiction. 

But  the  problem  of  monopoly  is  a  federal  problem. 
The  products  of  monopoly  pass  freely  in  interstate  com- 
merce immune  from  possible  prohibition  by  the  separate 
states.  The  trusts  trade  in  many  states  where  they  have 
no  considerable  tangible  property,  and  wherein  they  do 
not  file  their  articles  of  incorporation  or  obtain  a  state 
license  to  do  business.  The  profits  of  such  trade  are  with- 
drawn from  the  states,  the  labor  and  consumption  of  whose 
people  sustain  and  contribute  to  the  same  and  which  profits 
in  turn  can  not  be  subjected  to  contribution  in  taxes  or 
otherwise  for  the  benefit  of  the  communities  which  con- 
tribute to  and  produce  them. 

Monopoly  of  Profits. 

It  may  be  laid  down  as  fundamental  that  the  ulterior 
motive  of  monopolistic  combination  is  the  engrossment 
and  monopolization  of  profits.  The  business  of  the  coun- 
try in  any  particular  commodity  has  an  ascertainable  vol- 
ume, commensurate  with  the  national  consumption  of  that 
commodity.  The  production  and  distribution  of  such  a 
commodity  requires  the  employment  of  stock  invested  in 
industrial  plants  and  in  sustaining  the  circulation  of  such 
commodity  to  the  consuming  markets.  The  ability  of  a 
corporation  to  monopolize  such  production  and  trade  is  in 
direct  proportion  to  its  capital,  that  with  which  it  may 
purchase  industrial  property  or  effect  by  combination  the 
same  result.  As  stated  above,  the  prime  object  of  all  such 
combination,  either  by  purchase  or  conspiracy,  is  the  en- 
grossment and  monopolization  of  the  profits  of  the  trade 
and  the  protection  of  these  profits  by  the  exclusion  of 
others  from  competition  or  participation  in  the  trade. 

Now,  the  marvelous  industrial  system  of  the  United 


MONOPOLY  OF  PROFITS.  29 

States  is  stimulated  and  encouraged  by  the  duties  on  im- 
portations which  discriminate  against  foreign  products  in 
the  domestic  market.  This  is  the  traditional  economic 
policy  of  the  country.  And  it  would  be  manifestly  im- 
politic as  proposed  by  some  extremists  to  establish  a  free 
trade  policy  which  would  exempt  foreign  producers  from 
taxation  on  the  consumption  of  their  products,  and  lay 
direct  burdens  of  taxation  on  domestic  industry  in  its 
stead.  This  would  be  a  reversal  of  the  protective  policy — 
with  the  burden  on  the  home  producer  and  the  favor  for 
the  foreigner. 

There  is  a  tendency  in  all  healthful  industry  toward 
monopoly — the  employment  of  profits  for  the  engross- 
ment of  trade.  The  tarifif  stimulates  the  industry — the 
profits  of  industry  are  used  to  promote  engrossment  which 
when  accomplished  seeks  self-protection  in  unlawful  com- 
petition and  conspiracy  to  maintain  exclusive  advantages 
in  the  trade.  And  the  ability  of  such  combinations  for 
monopoly  is  in  direct  proportion  to  the  size  of  the  corpor- 
ation and  the  surplus  of  capital  or  stock  available  for 
this  purpose.  Yet,  it  were  chimerical  to  attempt  to  di- 
rectly limit  by  law,  either  the  amount  of  stock  a  corpora- 
tion may  employ  or  the  amount  of  its  profits,  or  the  pro- 
portion of  its  profits  to  the  principal  or  capital  amount  of 
its  stock.  Such  measures  would  create  an  unwise  hindrance 
to  industrial  competition,  activity  and  development. 

The  conventional  rate  for  the  hire  or  use  of  money 
may  very  well  be  limited  by  law  as  the  payment  in  such 
cases  is  a  contractual  obligation  guaranteed  by  the  prom- 
ise of  the  borrower  and  often  secured  by  the  pledge  of 
property.  If  the  lender  may  recover  at  the  law,  it  is  right 
that  he  should  only  recover  the  principal  and  a  reason- 
able relative  amount  for  the  hire  or  use  of  the  money 
loaned.  But  the  person  who  ventures  his  money  or  stock 
in  an  industrial  undertaking  may  not  recover  at  the  law 
his  stock  or  his  profits,  he  carries  the  risk  incident  to  his 
venture, — he  is  not  secured  in  the  return  of  his  stock  or  of 
his  profits  by  any  conventional  or  contractual  undertaking. 


30  DISINTEGRATION  OF  MONOPOLY. 

He  must  take  the  risks  of  the  venture,  depending  on  his 
good  judgment  and  capacity  in  a  field  in  which  he  should 
be-  equally  free  with  others  to  compete  for  the  gains  of 
enterprise.  And  there  can  be  no  freedom  of  competition 
unless  there  is  equal  freedom  of  competition,  just  as  men 
cannot  be  really  free  unless  they  are  equally  free,  at  least 
in  so  far  as  their  relations  are  regulated  and  governed  by 
paramount  laws. 

Now  both  the  hire  of  labor  and  the  hire  of  capital 
employed  in  industrial  enterprise  must  be  paid  out  of  the 
profits  of  the  enterprise.  If  both  labor  and  capital  are 
hired,  the  enterpriser  pays  the  hire  in  guaranteed  and 
stipulated  sums  as  the  wages  of  labor  and  the  interest  of 
capital,  which  "interest"  is  precisely  the  stipulated  and 
guaranteed  share  or  interest  of  the  capitalist  in  the  profits 
of  the  enterprise  in  which  his  capital  is  loaned  or  em- 
ployed. If  the  capitalist,  instead  of  lending  his  stock  for 
a  stipulated  interest  in  the  profits,  ventures  his  capital  in 
the  business,  he  then  divides  the  profits  of  the  enterprise 
in  proportion  to  his  share  in  the  capital  employed  in  the 
enterprise.  If  a  laborer  by  himself  or  in'  partnership  with 
others  hire  capital  or  stock  to  employ  in  business,  he  may 
pay  the  hire  of  the  stock  out  of  profits  and  divide  the  re- 
maining profits  to  himself  and  associates  as  the  wage  and 
reward  of  labor.  Labor  may  employ  capital  or  capital 
may  employ  labor — more  frequently  it  is  the  enterpriser 
who  hires  and  employs  both  and  pays  the  hire  of  capital 
and  of  labor  as  interest  and  wages  out  of  the  profits  of  his 
enterprise,  the  enterpriser  taking  to  himself  the  residue  of 
profits  as  his  own  reward. 

And  it  may  be  said  here,  in  passing,  that  one  of  the 
most  immoral  of  prevalent  financial  practices  is  the  indefi- 
nite payment  of  usury  on  funded  debts  representing  use- 
less and  long-since  dissipated  capital.  It  would  be  an 
intolerable  condition  if  a  great  milling  trust  should,  at 
an  early  day,  have  absorbed  all  the  grist  mills  of  the  coun- 
try and  as  these  mills  were  abandoned  to  depreciation  and 
decay,  the  trust  should  have  issued  new  capital  for  all  the 


WATERED  STOCK.  31 

new  mills  that  have  been  built,  and  then  should  have  in- 
sisted on  profits  paid  in  the  price  of  bread,  for  distribu- 
tion as  dividends  on  the  capital  represented  by  all  the 
abandoned  mills  scattered  over  the  country.  And  yet 
such  is  the  manifest  tendency  of  sustained  monopoly  in 
any  branch  of  industry.  Of  the  same  nature  of  sunken 
and  dissipated  capital  of  no  present  employment  in  the 
industry  of  the  country  and  yet  entailing  the  payment  of 
usury  out  of  the  labor  of  the  people  are  the  bonds  and 
funded  debts  incurred  in  the  wastes  and  dissipations  of 
war.  Such  debts  should  be  discharged  by  payment  and 
thus  compel  the  holders  of  the  same  to  look  to  the  rewards 
of  enterprise  and  of  industry  rather  than  to  the  patrimony 
of  the  governnient  for  the  preservation  and  augmentation 
of  such  capital.  The  payment  and  retirement  of  such  debts 
would  be  a  great  stimulus  to  industry  and  wealth  in  the 
country.  There  ought  to  be  a  limitation  to  the  cumulative 
burden  of  spendthrift  debts  from  one  generation  to  the 
next — debts  secured  not  by  the  estate  of  the  debtors  but 
by  the  servitude  of  succeeding  generations  of  men. 

Watered  Stock. 

The  confusion  in  the  public  mind  of  dividends  of 
profits  to  shares  of  stock  with  conventional  "interest"  or 
rent  on  bonded  obligations  has  largely  contributed  to 
the  facility  of  exploitation  and  deception  of  innocent  spec- 
ulators in  so-called  watered  stock.  A  bond  representing 
a  principal  obligation  expressed  in  a  definite  sum  of  money 
together  with  a  contractual  engagement  to  pay  hire  or  in- 
terest at  a  certain  rate  per  centum  on  the  capital  sum  is 
one  thing — shares  of  stock  represented  by  certificates  of 
a  nominal  and  expressed  money  value  are  with  respect  to 
such  indicated  value  of  little  more  signification  than  if 
they  were  obvious  counterfeits  of  government  currency. 
They  are  only  certificates  of  the  ownership  of  a  certain 
number  of  aliquot  parts  or  shares  of  the  capital  stock  and 
the  essential  value  of  the  certificate  is  in  its  character  as  a 


32  DISINTEGRATION  OF  MONOPOLY. 

muniment  of  title  to  the  specified  number  of  the  thousand 
or  other  number  of  equal  shares  into  which  the  stock  of 
the  corporation  is  divided,  which  carries  the  right  to  par- 
ticipate in  dividends  of  profits,  in  the  proportion  which  the 
number  of  shares  indicated  by  the  certificate  bears  to  the 
whole  number  of  shares  into  which  the  stock  is  divided. 
There  is  no  obilgation  to  pay  dividends — the  denomina- 
tional money  value  impressed  on  such  certificates  is  in  no 
sense  a  capital  sum  upon  which  conventional  interest  is  to 
be  paid,  nor  is  it  usually  in  any  respect  a  reliable  index 
of  the  value  of  the  stock.  It  were  well  for  the  public  pro- 
tection if  such  ostensible  indicia  of  value  were  to  be  pro- 
hibited from  imprintment  on  certificates  of  shares  of  stock 
in  industrial  corporations,  for  in  this  practice,  in  part  at 
least,  consist  the  evils  of  stock  watering — doubling  up  the 
number  of  shares  of  indicated  value  and  thereby  increas- 
ing the  ostensible  capital  and  the  number  of  certificates 
for  jobbing  purposes.  It  is  difficult  to  see  what  can  be  done 
by  lav/  to  protect  those  who  "invest"  or  have  invested  in 
such  "paper"  or  "securities"  as  they  are  euphoneously 
called.  Certainly  the  government  is  under  no  moral  or 
political  duty  to  protect  such  "investments,"  howsoever 
innocently  made.  These  "investors"  simply  venture  their 
money.  They  do  not  secure  themselves  by  contractual  en- 
gagements for  the  return  of  either  principal  or  interest. 
They  usually  have  no  intention  of  participating  as  stock- 
holders in  the  direction  and  management  of  the  corpora- 
tion in  which  they  buy  shares  of  stock.  The  directors  in 
any  event  will  not  allow  them  more  as  dividends  than  the 
conventional  rate  for  the  hire  of  money.  They  have  other 
uses  for  the  surplus.  If  such  "investors"  desire  to  loan 
their  money  they  should  take  the  bond  of  the  borrower, 
and  it  is  of  just  such  bonded  loans  that  the  greater  part  of 
nctual  industrial  capital  is  composed. 

The  capital  stock  of  any  industry  is  constantly  chang- 
ing in  amount  and  value.  There  is  accumulative  depre- 
ciation which  if  not  repaired  will  wear  out  and  consume 
such  capital.    Not  only  is  the  capital  which  is  no  other  than 


WATERED  STOCK.  33 

the  industrial  property,  equipment,  and  money  used  in  the 
business,  subject  to  the  depreciation  caused  by  use  and 
decay,  but  its  value  also  to  the  stockholders,  may  be 
greatly  impaired  by  the  encumbrance  of  debts  contracted 
in  the  course  of  business.  All  of  these  things  directly 
affect  the  value  of  aliquot  parts  of  the  stock  represented 
by  stock  certificates.  But  the  value  of  shares  of  stock  is 
more  directly  fixed  in  the  market  by  the  earning  capacity 
of  the  corporation,  and  this  capacity  depends  not  alone  on 
the  intrinsic  value  of  the  actual  stock,  but  quite  as  much 
upon  the  efficiency  of  the  business  as  a  going  concern.  ^The 
extent  and  steadiness  of  its  trade,  the  physical  state  of  its 
property,  the\  skill  and  efficiency  with  which  it  is  man- 
aged, the  personnel  of  its  working  force  and  directorate 
are  all  important  factors  in  the  earning  capacity,  none  of 
which  factors,  however,  are  or  can  be  indicated  by  the 
nominal  value  imprinted  on  the  shares  as  represented  by 
certificates. (Stock  is  "watered"  to  conceal  the  true  propor- 
tion of  profits  to  capital  expressly  to  deceive  the  consum- 
ing public,  but  there  obviously  can  be  due  appreciation  of 
shares  in  the  market  without  their  multiplication  or  de- 
ceptive description  in  order  to  excite  speculation.  Be- 
cause of  the  constant  and  cumulative  depreciation  of  stock 
and  variation  both  in  conditions  of  production  and  of  the 
demand  of  particular  markets,  all  of  which  inhere  in  the 
nature  of  industrial  enterprises,  any  attempt  by  law  to 
regulate  or  limit  profits  based  upon  "physical  value"  or 
"actual  investment"  must  prove  abortive,  and  is  a  pursuit 
of  an  absurd  and  fatuous  policy. 

The  matter  of  the  aerated,  watery  or  solid  character 
of  stock  employed  in  business  is  no  concern  of  the  gov- 
ernment except  as  it  may  prevent  representations  of  the 
"par"  value  at  which  beautifully  engraved  stock  certifi- 
cates are  to  be  exchanged  for  the  money  of  the  "investing" 
public.  If  one  should  brand  his  goods  as  a  certain  quantity 
of  money  no  one  would  think  the  goods  were  money — yet 
there  are  those,  and  their  tribe  is  many,  who  think  that 
when  paper  is  stamped  as  money,  it  is  money,  at  least  ex- 


34  DISINTEGRATION  OF  MONOPOLY. 

changeable  at  par  for  money,  and  the  constitution  protects 
all  such  against  restraint  of  the  right  to  freely  trade,  spend 
and  alienate  their  property.  Wind  and  water  may  be  le- 
gitimate agencies  of  industry.  There  are  veritable  wind- 
mills in  Kansas,  and  in  Connecticut  there  are  incorporated 
water  mills  in  which  one  may  doubtless  purchase  shares 
of  stock,  but  these  as  yet  have  not  been  adapted  to  the 
fabrication  of  steel. 

Now,  the  government  cannot  compel  a  man  to  ven- 
ture his  money  or  property  in  the  seeking  of  the  gains  of 
business — yet  if  property  be  not  employed  it  is  consumed 
by  the  decays  of  time.  Stock  may  only  be  conserved  and 
augmented  by  its  employment  in  the  processes  of  pro- 
duction and  reproduction.  And  the  rewards  of  growth 
and  wealth  in  stock  are  the  incentive  to  its  employment  in 
the  enterprises  of  business. 

And  men  must  be  equally  free  to  engage  in  the  pur- 
suit of  and  to  compete  for  the  gains  of  business ;  that  is  to 
seek  for  these  gains  in  common  though  not  necessarily  in 
company  with  others — and  that  is  all  there  is  to  compe- 
tition. And  all  this  is  for  the  supply  of  the  consumption 
of  men  and  the  business  is  limited  by  the  volume  of  this 
consumption.  There  are  certain  advantages  which  natur- 
ally pertain  to  those  who  are  established  in  the  trade, 
with  which  it  is  difficult  for  the  new  adventurer  to  com- 
pete, except  as  those  advantages  are  diminished  by  decays 
and  variations  of  time.  And  the  world  is  covered  with 
the  ruins  of  decayed  industry,  to  which  there  has  been  no 
succession  other  than  the  adverse  succession  of  competi- 
tors.    And  this  is  the  order  of  the  natural  world. 

Proper  Units  of  Integration. 

The  most  natural  integration  of  competing  units  is 
exemplified  by  the  unified  growth  and  integration  of  pop- 
ulation in  our  cities  and  the  competition  of  cities  for  the 
attraction  of  new  population.  And  there  is  nothing  of  con- 
cert or  conspiracy  here,  nor  is  such  possible.    It  is  believed 


MEANS  OF  DISINTEGRATION.  35 

that  the  distribution  of  goods  from  trade  centers  to  trib- 
utary territory  or  the  jobbing  trade,  as  it  is  called,  is  pres- 
ently exercised  on  the  principles  of  free  competition  hon- 
estly pursued  as  to  both  prices  and  service,  all  to  the  high- 
est benefit  of  the  consuming  trade.  In  other  industries,  as 
in  the  jobbing  trade,  it  is  believed  that  there  is  no  great 
danger  in  integration  at  industrial  centers,  if  only  the  com- 
petition between  such  centers  shall  be  maintained.  This 
would  seem  to  promise  the  highest  economy  of  produc- 
tion and  efficiency  of  distribution. 

There  is  no  economic  objection  to  the  size  of  the  steel 
plant  and  appurtenances  at  Gary,  Indiana,  but  there  is 
no  economic  good  in  the  integrated  control  by  the  United 
States  Steel  Corporation  of  the  dominating  plants  at  Pitts- 
burg in  Pennsylvania  and  at  Birmingham,  in  Alabama,  and 
of  the  hundred  and  thirty  odd  other  plants  scattered  over 
the  steel  producing  area  of  the  United  States.  Nor  is  there 
justification  in  morals  or  economy  for  the  confederation  of 
the  Carnegie  Steel  Company,  the  Illinois  Steel  Company, 
the  National.  Tube  Company,  the  American  Steel  &  Wire 
Company,  the  American  Sheet  &  Tin  Plate  Company,  the 
Sharon  Tin  Plate  Company,  the  American  Bridge  Com- 
pany, the  Union  Steel  Company,  the  Indiana  Steel  Com- 
pany, and  the  Tennessee  Coal,  Iron,  &  Railroad  Company, 
into  an  integrated  fiscal  and  securities  corporation  for  the 
control  of  markets,  the  fixing  of  prices,  the  engrossment, 
collection  and  distribution  of  profits  and  the  fastening  upon 
the  consuming  public  in  the  price  of  steel  of  fixed  capital 
charges  to  provide  revenues  on  the  funded  capitalization 
of  its  abandoned  and  depreciating  plants.  Such  combina- 
tion is  not  essential  to  either  economy  of  production  or  of 
distribution  to  the  territory  tributary  to  the  centers  of 
steel  production  in  the  United  States. 

The  Means  of  Disintegration. 

Now,  what  of  the  remedy  for  these  conditions  in  the 
industries  of  the  United  States?  No  mere  private  litigious 
right  to  compensation  for  damage  done  nor  injunction  for 


36  DISINTEGRATION  OF  MONOPOLY. 

the  prevention  of  damage  threatened  will  suffice.  Indeed 
these  are  public,  not  private  wrongs,  which  call  for  political 
prevention  rather  than  compensatory  or  vindicatory  pun- 
ishment. In  our  free  country  the  potentiality  of  competi- 
tion must  be  maintained,  and  the  only  way  to  maintain 
the  potentiality  of  competition  is  to  take  away  the  poten- 
tiality of  the  trusts  to  unduly  interfere  with  competition. 
And  this  cannot  be  left  to  good  intentions — the  potentiality 
of  the  trusts  for  harm  must  be  prevented,  and  this  not  by 
judicial  process  acting  in  particular  cases,  but  by  political 
means  acting  automatically  and  generally  in  the  field  of  in- 
dustry. 

The  American  tariff  stimulated  the  establishment  of 
the  great  American  steel  industry.  The  prosperity  of  that 
industry  has  produced  a  constant  tendency  toward  engross- 
ment and  monopoly  for  the  more  complete  integration 
and  protection  of  which  the  United  States  Steel  Corpora- 
tion was  created.  The  profits  of  this  corporation  for  the 
fiscal  year  ending  December  31st,  1910,  in  round  numbers 
amounted  to  one  hundred  forty-eight  millions  of  dollars, 
distributed  as  follows : 

Depreciation   funds   and  sinking  funds   for 

bond  liquidation  $  30,000,000.00 

New  plants  and  construction 15,000,000.00 

New  construction  at  Gary,  Indiana 10,000,000.00 

Interest  on  bonded  indebtedness 30,400,000.00 

Dividends  on  the  preferred  stock 25,200,000.00 

Dividends  on  the  common  stock 25,400,000.00 

Surplus  of  profits  12,000,000.00 

$148,000,000.00 

The  gross  revenues  of  the  United  States  Steel  Corpor- 
ation for  the  fiscal  year  ended  December  31st,  1910,  were 
$703,961,424.41  (Ninth  report  of  United  States  Steel  Cor- 
poration, p.  34).  The  total  revenues  of  the  United  States 
government  for  the  fiscal  year  ended  June  30th,  1910,  were 


MEANS  OF  DISINTEGRATION.  37 

$675,511,715.02  (Annual  report  of  the  Secretary  of  the 
Treasury  on  the  State  of  the  Finances,  1910,  p.  26).  It 
was  claimed  in  1911  that  the  Steel  Trust  up  to  that  time 
had  expended  more  than  $400,000,000  of  profits  in  new 
construction  and  replacements  in  its  plants.  There  is  no 
objection  to  such  application  of  the  surplus  profits  of  in- 
dustry, especially  in  cases  where  the  real  capital  is  repre- 
sented by  bonded  indebtedness  which,  after  reception  of  its 
stipulated  interest  in  the  profits,  has  no  right  to  participate 
in  the  further  appropriation  or  dividend  of  the  same. 

Now  the  tariff  of  duties  on  imports  is  to  be  a  perma- 
nent factor  in  the  fiscal  policy  of  the  United  States,  as  it 
relates  to  the  collection  of  the  federal  revenues.  And  the 
impost  on  importations  has  a  close  relation  by  nature  to 
the  excise  from  domestic  production  and  consumption  and 
to  the  duty  on  business — all  of  which  are  expressly  in- 
cluded within  the  power  of  Congress  as  provided  in  Article 
I,  Section  7,  of  the  Federal  Constitution: 

"The  Congress  shall  hg,ve  Power  to  lay  and  collect  Taxes,  Duties, 
Imposts  and  Excises  to  pay  the  Debts  and  provide  for  the  common 
Defense  and  general  Welfare  of  the  United  States;  but  all  Duties, 
Imposts  and  Excises  shall  be  uniform  throughout  the  United  States." 

The  power  to  lay  duties,  imposts  and  excises  gives  to 
Congress  the  most  direct,  intimate  and  comprehensive  po- 
litical power  over  the  industries  and  commerce  of  the 
United  States,  all  in  consistent  harmony  with  the  intent 
and  plan  of  the  Constitution  in  delegating  to  Congress 
power  over  the  interstate  and  international  relations  of 
the  country.  Land  and  labor  may  be  subjected  to  direct 
capital  or  capitation  taxes.  Both  are  fixed  as  to  locus  and 
residence,  and  on  them  directly  operates  the  essential  po- 
litical jurisdiction  of  the  separate  American  States.  But 
the  business  of  the  country  freely  permeates  all  of  its  parts 
without  regard  to  state  territory  or  jurisdiction.  The 
profits  of  industry  are  drawn  from  the  labor  of  all  the  peo- 
ple, and  should  be  taxed  for  the  benefit  of  all  the  people, 
as  may  only  be  done  by  Congress  in  the  exercise  of  the 


38  DISINTEGRATION  OF  MONOPOLY. 

political  powers  of  the  federal  government.  The  nominal 
capital  and  bonded  capital  obligations  of  American  corpor- 
ate industries  are  in  excess  of  eighty-five  billions  of  dollars. 
The  annual  profits  of  American  business  are  in  excess  of 
live  billions  of  dollars — all  the  product  of  the  annual  labor 
and  stock  of  the  country  v^ithdrawn  from  all  its  parts  to 
the  larger  financial  centers  for  distribution  and  absorption. 
The  states  are,  in  the  nature  of  things,  powerless  to  lay 
the  profits  of  this  gigantic  industry  under  contribution  to 
the  public  revenues — though  the  people  of  all  the  states 
contribute  of  their  labor  and  consumption  to  the  creation 
of  these  concentrated  profits  of  American  industry.  The 
distribution  of  profits  in  dividends  and  interest  in  January, 
1913,  at  New  York  City,  was  reported  at  $244,264,500— 
not  the  product  of  the  state  or  city  of  New  York  but  the 
product  of  the  consumption  and  industry  of  the  American 
people.  And  how  may  this  annual  wealth  be  subjected  to 
the  regulation  and  sustenance  of  the  government?  By  a 
federal  tax  on  the  profits  of  business — a  graduated  tax  on 
the  profits  of  business  which  shall  fall  with  the  greater 
weight  on  the  monopolies  and  trusts  and  thus  handicap 
them  in  their  competition  with  the  smaller  and  independ- 
ent units  of  industry.  If  a  graduated  tax  of  one  per  cent 
on  the  first  million  and  a  cumulative  tax  of  one-tenth  of 
one  percent  on  each  of  the  subsequent  and  suceeding  mil- 
lions were  laid  on  the  hundred  and  more  millions  of  annual 
profits  of  the  Steel  trust,  there  would  soon  be  a  vacation 
and  abandonment  of  the  accounting  and  disbursing  offices 
of  the  United  Steel  Corporation  at  51  Newark  Street, 
Hoboken,  New  Jersey,  and  this  without  diminution  or  ces- 
sation in  the  production  of  steel.  The  obsolete  plants 
would  be  abandoned  to  decay,  the  newer  and  efficient  ones 
would  be  operated  as  independent  units.  New  ventures  of 
capital  of  sufficient  magnitude  for  economic  production 
could  then  be  made  without  disturbance  by  conspiracy  or 
combination  to  drive  them  out  of  the  market.  The  price  of 
steel  would  adjust  itself  to  a  proper  relation  to  productive 
costs,  and  healthful  and  sound  conditions  in  the  industry 


MEANS  OF  DISINTEGRATION.  39 

would  be  promoted.  There  should  be  no  limitation  of 
the  amount  of  revenues  which  may  be  appropriated  to  the 
wages  of  labor  or  to  the  replacement  and  arrest  of  depreci- 
ation, nor  should  account  be  taken  of  capital  in  laying  the 
tax.  Under  these  conditions  there  would  be  a  tendency 
toward  readjustment  of  the  relative  interests  of  bond- 
holders and  stockholders  in  the  profits  of  the  industry. 

Congress  can  fashion  the  graduation  of  the  tax  on 
profits  to  meet  the  conditions  in  separate  industries,  and 
the  only  limitation  on  the  exercise  of  this  power  is  that 
the  duty  in  any  particular  industry  shall  be  uniform  as  to 
that  industry  throughout  the  United  States.  There  could 
be  a  graduated  general  tax  on  the  profits  of  business  or  a 
particular  graduated  tax  for  certain  industries  as  the  ex- 
igencies of  economic  and  political  conditions  may  require. 
But  like  the  tariff,  the  application  of  such  a  tax  would  call 
for  the  most  unselfish,  sagacious  and  patriotic  endeavor  by 
statesmen  of  liberal  and  composed  views. 

The  principle  to  be  applied  is  epitomized  in  this  state- 
ment which  ,was  prepared  for  presentation  to  the  Commit- 
tee on  Resolutions  of  the  National  Democratic  Conven- 
tion at  Baltimore,  June,  1912. 

"For  the  disintegration  of  monopoly  and  the  restoration  of  equal- 
ity in  competition,  we  favor  the  imposition  of  a  graduated  tax  on  the 
profits  of  business  which  shall  lay  discriminating  burdens  on  trusts 
and  monopolies  and  thus  increase  the  competence  and  ability  of  those 
who  efficiently  employ  smaller  capitals  to  compete  with  the  monopolies 
in  the  markets  of  the  country.  The  tax  is  to  be  laid  on  all  profits 
annually  available  for  distribution,  either  as  interest  on  borrowed  cap- 
ital, or  as  dividends  on  shares  of  stock." 

It  is  submitted  that  such  a  policy  would  be  in  har- 
monious consistence  with  the  fiscal  powers  conferred  upon 
Congress  by  the  federal  Constitution,  and  would  be  a 
proper  supplement  and  complement  to  the  established 
fiscal  policy  of  the  country. 

September  1,  1913. 


A  Competitive  Tariff. 

The  American  people  by  a  preponderance  of  political 
opinion  are  in  favor  of  a  tariff  for  revenue  w^ith  the  accent 
on  tariff.  This  policy  is  supported  by  the  best  political 
experience  and  the  traditions  of  the  country.  The  confu- 
sion of  ideas  on  the  tariff  has  been  due,  in  somewhat  large 
measure,  to  the  infusion  of  Cobdenism  and  other  exotic 
notions  into  American  political  thought,  all  of  v^hich  has 
rendered  more  dillficult  the  discernment  and  evolution  of 
the  true  American  tariff  policy. 

Out  of  the  years  of  controversy,  there  has  finally  come 
a  notably  clear  notion  of  v^hat  is  denominated  a  competi- 
tive tariff  v^hich  does  not  exclude  foreign  importations,  yet 
gives  the  American  producer  a  preference  in  the  American 
market.  If  duties  are  so  high  as  to  prevent  importations, 
there  is  no  more  of  revenue  than  if  there  were  free  trade. 
Both  the  extreme  doctrines  of  prohibition  and  of  free  trade 
are  equally  inconsistent  with  the  imposition  of  duties  on 
imports  to  provide  revenues  "to  pay  the  debts  and  provide 
for  the  common  defense  and  general  welfare  of  the  United 
States."  (Constitution  of  the  United  States,  Article  1, 
Sec.  7.) 

But  the  tariff  of  duties  on  importations,  or  the  impost 
as  it  is  technically  called,  is  in  its  nature  a  tax  which 
discriminates  against  foreign  goods  in  the  American 
market;  and  in  this  sense  the  tariff,  any  tariff  of  whatso- 
ever denomination,  is  protective.  A  revenue  tariff  of 
twenty  per  cent  is  precisely  the  same  as  a  protective  tariff 
of  twenty  per  cent  both  as  to  its  effect  as  a  regulation  of 
foreign  trade  and  as  a  preferential  discrimination  in  favor 
of  the  domestic  producer  in  the  home  market.  There  have 
been   those   w^ho   have   perceived   this   from   the   very   in- 


COMPETITIVE  TARIFF.  41 

ception  of  the  fiscal  system  and  policy  of  the  government 
under  the  Constitution. 

In  the  Tariff  Bill  reported  by  James  Madison  out  of 
the  Ways  and  Means  Committee  of  the  House  of  Repre- 
sentatives in  1792,  the  American  tariff  policy  is  thus  stated 
in  the  preamble  to  the  bill : 

"Whereas  it  is  necessary  for  the  support  of  the  government,  for 
the  discharge  of  the  debt  of  the  United  States  and  the  encourage- 
ment and  protection  of  manufactures,  that  duties  be  levied  on  goods, 
wares,  and  merchandise  imported,  etc." 

That  Madison  entertained  these  views  throughout  his 
political  careex^is  indicated  by  his  executive  message  to 
Congress  of  February  20th,  1815,  wherein  he  urged  "de- 
liberate consideration  of  the  means  to  preserve  and  pro- 
tect the  manufactures  which  have  sprung  into  existence 
and  attained  unparalleled  maturity  throughout  the  United 
States  during  the  period  of  the  European  wars." 

Thomas  Jefferson  also  recognized  that  the  embargo 
on  foreign  commerce  incident  to  the  war  between  England 
and  France  and  also  the  interruption  of  foreign  commerce 
during  the  war  of  1812  had  resulted  in  a  great  impetus 
to  domestic  manufactures  and  fabrication,  and  it  was  with 
gratification   that  Jefferson   recorded   these   observations. 

In  a  letter  to  the  Convention  of  Democratic-Republi- 
can Delegates  from  the  townships  of  Washington  county, 
Pennsylvania,  written  from  Monticello,  February  21,  1809, 
Jefferson  said : 

"It  is  true  that  the  embargo  laws  have  not  had  all  the  effect  in 
bringing  the  powers  of  Europe  to  a  sense  of  justice,  which  a  more 
faithful  observance  of  them  might  have  produced.  Yet  they  have  had 
the  important  effects  of  saving  our  seamen  and  property,  of  giving 
time  to  prepare  for  defense;  and  they  will  produce  the  further  inesti- 
mable advantage  of  turning  the  attention  and  enterprise  of  our  fellow 
citizens,  and  the  patronage  of  our  State  legislatures,  to  the  establish- 
ment of  useful  manufactures  in  our  country.  They  will  have  hastened 
the  day  when  an  equilibrium  between  the  occupations  of  agriculture, 
manufactures  and  commerce,  shall  simplify  our  foreign  concerns 
to  the  exchange  only  of  that  surplus  which  we  cannot  consume  for 


42  .     COMPETITIVE  TARIFF. 

those  articles  of  reasonable  comfort  or  convenience  which  we  cannot 
produce." 

There  need  be  no  hesitancy  in  admitting  that  the  im- 
post and  other  hindrances  to  importation  have  been  a  re- 
markable stimulus  to  domestic  industry  in  the  United 
States  and  that  our  most  notable  statesmen  have  acknowl- 
edged this  fact. 

But  the  tariff  has,  by  its  manufacturing  beneficiaries, 
been  brought  to  great  abuse  and  converted  into  a  privilege 
v^hich  these  beneficiaries  w^.ould  make  a  vested  right  in  the 
policy  of  the  government.  We  have  had  a  perfect  fruition 
of  the  industrial  utility  of  w^omen  and  children  as  projected 
by  Hamilton  when  he  said: 

"It  is  worthy  of  remark  that  in  general  women  and  children  are 
rendered  more  useful  and  the  latter  more  early  useful  by  manufactur- 
ing establishments  than  they  would  otherwise  be.  Of  the  number 
of  persons  employed  in  the  cotton  manufacturies  of  Great  Britain, 
it  is  computed  that  four  sevenths  nearly  are  women  and  children  of 
whom  the  greatest  proportion  are  children  and  many  of  them  of 
very  tender  age." 

It  may  also  be  remarked  that  "free  raw  materials"  is 
usually  an  accompaniment  of  a  distinctively  manufactur- 
ers' tariff  and  while  it  may  be  said  that  the  free  admission 
into  our  markets  of  foreign  lumber,  coal,  iron,  petroleum 
and  other  natural  materials  would  be  a  conservation  of 
our  own  resources  and  reserves  of  such  materials,  this 
would  not  be  true  in  the  same  sense  of  the  free  admission 
into  our  markets  of  the  raw  produce  of  foreign  agricul- 
ture, to  the  exclusion  of  an  equal  quantity  of  the  raw  pro- 
duce of  American  agriculture.  Adam  Smith  spoke  truly 
of  the  manufacturers,  when  he  said: 

"They  are  as  intent  to  keep  down  the  wages  of  their  own  weavers 
as  the  earnings  of  the  poor  spinners;  and  it  is  by  no  means  for  the 
benefit  of  the  workman,  that  they  endeavor  to  raise  the  price  of  the 
complete  work  or  to  lower  that  of  the   rude   materials." 

But  the  vaunted  glories  of  the  protective  tariff  as  also 
its  infamous  injustice  partake  of  the  exaggeration  natural 
to  extravagant  partisan  views.     And  there  are  partisan 


COMPETITIVE  TARIFF.  43 

views  of  the  tariff  which  are  not  to  be  harmonized  by  any 
tariff  commission  which  seeks  to  apply  a  partisan  theory 
to  the  adjustment  of  the  tariff — certainly  not  by  the  appli- 
cation of  the  theory  of  the  protection  of  profits  which  re- 
ceived its  frankest  expression  in  the  platform  adopted  by 
the  Republican  party  at  Chicago  in  1908,  a  servile  fidelity 
to  which  was  the  undoing  of  the  administration  of  the  late 
President  William  H.  Taft: 

"In  all  tariflf  legislation,  the  true  principle  of  protection  is  best 
maintained  by  the  imposition  of  such  duties  as  will  equal  the  dif- 
ference between  the  cost  of  production  at  home  and  abroad  together 
with  a  reasonable  profit  to  American  industries." 

No,  it  is  revenue,  and  not  protection  of  profits  which 
must  be  the  preponderating  principle  in  the  laying  of  du- 
ties, imposts  and  excises,  and  the  revenue  principle  re- 
quires a  competitive  tariff  to  the  exclusion  of  the  prohibi- 
tions of  a  distinctively  protective  tariff.  Yet,  as  one  who 
has  been  brought  up  in  the  school  of  partisan  Democratic 
politics,  I  may  be  permitted  to  say  that  I  am  in  favor  of  a 
tariff  for  revenue  as  against  any  system  of  direct  internal 
taxation  of  land  or  labor,*  because  the  tariff  on  importa- 


*The  proponents  of  the  federal  income  tax  in  its  direct  personal  or 
capitation  form,  would  justify  the  tax  upon  the  ground  that  it  is  a  tax 
upon  invested  wealth.  But  a  tax  upon  the  wages  and  rewards  of  per- 
sonal labor  is  not  a  tax  upon  the  profits  of  wealth.  For  example:  two 
young  men  each  inherit  invested  property  or  stock,  producing  an 
annual  income  to  each  of  them  in  the  sum  of  $3,000.  The  one  does  no 
useful  work  but  expends  his  income  in  prodigal  living.  He  renders 
no  service  to  society  and  consequently  earns  nothing  as  wages  or 
salary  of  labor.  The  other  young  man  enters  some  useful  vocation 
in  which  he  earns  for  personal  service  an  annual  salary  of  $3,000. 
Under  the  provisions  of  the  income  tax  law,  the  first  young  man  who 
does  no  useful  work  or  labor  is  exempt  from  the  tax  while  the  other 
young  man  who  does  useful  work  and  labor  is  in  effect  penalized 
by  a  requirement  to  pay  income  tax  on  $3,000.  It  were  certainly 
more  equitable  and  politic  to  require  each  of  these  men  to  pay  on 
$3,000  received  by  each  of  them  as  income  from  invested  property  and 
to  apply  the  exemption  exclusively  to  money  received  as  the  wages 
of  personal  industry,  service  or  labor. 

Then,  too,  it  is  to  be  doubted  that  there  is  any  justification  in 
sound  policy  for  a  federal  tax  on  land  or  upon  the  rents  and  issues 
of  land.  The  single  taxers  are  pushing  their  extreme  doctrines  to 
the  point  of  practical  absorption  of  the  rent  of  land  by  confiscatory 
rates  of  taxation.  Land  tax  rates  in  many  localities  now  range  from 
3  per  cent  to  4  per  cent  of  the  ascertained  capital  value  of  land.     The 


44  COMPETITIVE  TARIFF. 

tions  does  give  a  preference  to  the  American  producer  in 
the  home  market.  And  in  a  commercial  view  the  domestic 
trade  and  the  markets  which  accomodate  it  should  receive 
the  patronizing  care  of  our  best  statesmanship,  for  it  is 
the  most  valuable  and  profitable  of  all  our  commerce. 
This  fact  was  stated  in  1776  by  Adam  Smith  and  Smith  is 
currently  received  as  the  chief  doctor  of  the  free  traders. 
Adam  Smith  says  in  his  Wealth  of  Nations: 

"After  agriculture,  the  capital  employed  in  manufactures  puts  in 
motion  the  greatest  quantity  of  productive  labor,  and  adds  the  greatest 
value  to  the  annual  produce.  That  which  is  employed  in  the  trade 
of  exportation  has  the  least  effect  of  any  of  the  three.  *  *  * 
Though  the  returns,  therefore,  of  the  foreign  trade  of  consumption 
should  be  as  quick  as  those  of  the  home  trade,  the  capital  employed 
in  it  will  give  but  one  half  the  encouragement  to  the  industry  or 
productive  labor  of  the  country.  *  *  *  The  returns  of  the  foreign 
trade  of  consumption  seldom  come  in  before  the  end  of  the  year,  and 
sometimes  not  until  after  two  or  three  years.  A  capital  employed 
in  the  home  trade  will  sometimes  make  twelve  operations,  or  be  sent 
out  and  returned  twelve  times,  before  a  capital  employed  in  the 
foreign  trade  of  consumption  has  made  one.  If  the  capitals  are 
equal  therefore,  the  one  will  give  four  and  twenty  times  more  en- 
couragement and  support  to  the  industry  of  the  country  than  the 
other.  *  *  *  The  capital  therefore  employed  in  the  home  trade 
of  any  country  will  generally  give  encouragement  and  support  to  a 
greater  quantity  of  productive  labor  in  that  country  and  increase  the 
value   of  its   annual   produce   more   than   an    equal   capital    employed 


tax  on  land  should  upon  any  sound  theory  be  paid  out  of  the  rents 
and  issues,  but  cases  are  not  of  infrequent  occurrence  where  land 
taxes  are  paid  out  of  the  earnings  of  labor  and  of  other  invested 
capital.  Certainly  the  taxation  of  land  and  of  its  rents  and  issues,  is 
properly  a  matter  of  exclusive  state  policy  with  which  the  federal 
government  has  no  proper  concern.  For  a  proprietor  of  land  to 
pay  of  the  income  from  his  land,  state  and  municipial  taxes  at  high 
rates  and  then  in  addition  to  this  to  pay  a  federal  tax  on  the  rents 
and  issues  of  the  same  land  is  palpable  double  taxation. 

The  annual  net  produce  is  the  source  of  income  to  all  the  people. 
As  Adam  Smith  puts  it: 

"The  whole  price  of  the  exchangeable  value  of  the  annual  produce 
must  resolve  itself  into  the  same  three  parts  and  be  parceled  out 
among  the  different  inhabitants  of  the  country,  either  as  the  wages  of 
their  labor,  the  profits  of  their  stock,  or  the  rent  of  their  land.  *  *  * 
The  whole  value  of  the  annual  produce  of  the  land  and  labor  of  every 
country  is  thus  divided  among  and  constitutes  a  revenue  to  its  different 
inhabitants." 


COMPETITIVE  TARIFF.  45 

in  the  foreign  trade  of  consumption.  *  *  *  t;\iq  riches,  and  so 
far  as  power  depends  on  riches,  the  power  of  every  country  must  al- 
ways be  in  proportion  to  the  vahie  of  its  annual  produce,  the  fund 
from  which  all  taxes  must  ultimately  be  paid.  The  great  object 
of  the  political  economy  of  every  country  is  to  increase  the  riches 
and  power  of  that  country."* 

Now,  is  there  not  some  common  ground  upon  which 
those  who  believe  in  a  tariff  can  adjust  and  accomodate 
their  differences  for  incorporation  into  a  permanent  Ameri- 
can tariff  policy?  Has  not  the  difference  between  revenue 
and  protection  been  worn  so  threadbare  that  it  presently 
offers  no  real  or  substantial  basis  for  unyielding  political 
sectarianism  in  relation  to  the  fiscal  policy  of  our  coun- 
try? 

The  revenue  and  protective  tariff  doctrines  have  their 
derivation  from  and  most  authoritative  statement  in  the 
celebrated  reports  to  Congress  of  Robert  J.  Walker  and  of 
Alexander  Hamilton,  both  distinguished  Secretaries  of  the 
Treasury.  Hamilton  faced  the  problem  of  the  establish- 
ment of  public  credit  and  the  funding  of  the  public  debt; 
Walker,  the  providing  of  public  revenues  for  the  orderly 
conduct  and  administration  of  the  government,  the  per- 
sistent execution  of  the  plans  of  Albert  Gallatin,  another 
great  Secretary  of  the  Treasury,  having  theretofore  ac- 
complished the  payment  of  the  public  debt.  As  the  con- 
troversy between  the  revenue  and  protection  schools,  re- 
solves itself  primarily  into  an  issue  as  the  rate  for  a  proper 
duty  on  imports,  we  may  examine  the  Hamilton  and 
Walker  reports  to  discover  the  basis  for  the  differences 
which  divide  these  schools  of  fiscal  politics. 


♦Domestic  industry  in  the  United  States  could  be  stimulated  by 
the  compilation  and  publication  of  statistical  information  respecting 
the  movement  of  commodities  in  commerce  between  particular  lo- 
calities of  production,  fabrication,  distribution  and  consumption  to- 
gether with  data  as  to  the  quantity,  nature,  value  and  cost  of  carriage 
of  commodities  moving  to  and  from  particular  consuming  communi- 
ties and  centers  of  distribution.  Data  to  be  incorporated  into  such 
statistics  could  be  elaborated  from  the  reports  of  railroad  carriers  to 
the  Interstate  Commerce  Commission  and  could  be  arranged,  com- 
piled and  published  by  the  Department  of  Commerce.  Such  sta- 
tistics would  be  of  valuable  application  by  Chambers  of  Commerce  in 
the  American  cities  and  commercial  centers. 


46  COMPETITIVE  TARIFF. 

Alexander  Hamilton  in  his  Report  on  Manufactures, 
Philadelphia,  1798,  said: 

"There  are  grounds  to  conclude,  that  undertakers  of  manufactures 
in  this  country  can,  at  this  time,  afford  to  pay  higher  wages  to  the 
workmen  they  may  employ,  than  are  paid  to  similar  workmen  in 
Europe.  The  price  of  foreign  fabrics  in  the  market  of  the  United 
States,  which  will,  for  a  long  time,  regulate  the  price  of  the  do- 
mestic ones,  may  be  considered  as  compounded  of  the  following  in- 
gredients: the  first  cost  of  materials,  including  the  taxes,  if  any,  which 
are  paid  upon  them,  where  they  are  made;  the  expenses  of  grounds, 
buildings,  machinery  and  tools;  the  wages  of  the  persons  employed 
in  the  manufactory;  the  profits  of  the  capital  or  stock  employed;  the 
commissions  of  agents  to  purchase  them  where  they  are  made;  the 
expense  of  transportation  to  the  United  States  including  insurance  and 
other  incidental  charges;  the  taxes  or  duties,  if  any,  fees  of  office, 
which  are  paid  on  their  exportation;  the  taxes  or  duties,  and  fees  of 
office  which  are  paid  on  their  importation, 

"As  to  the  first  of  these  items,  the  cost  of  materials,  the  ad- 
vantage upon  the  whole  is  at  present  on  the  side  of  the  United  States; 
and  the  difference  in  their  favor  must  increase,  in  proportion  as  a 
certain  and  extensive  domestic  demand  shall  induce  the  proprietors 
of  the  land  to  devote  more  of  their  attention  to  the  production  of 
these  materials.  It  ought  not  to  escape  observation,  in  a  comparison 
on  this  point,  that  some  of  the  principal  manufacturing  countries  of 
Europe  are  much  more  dependent  on  foreign  supply  for  the  materials 
of  their  manufactures,  than  would  be  the  United  States,  who  are 
capable  of  supplying  themselves  with  a  greater  abundance,  as  well 
as  a  greater  variety,  of  the  requisite  materials. 

"As  to  the  second  item,  the  expense  of  grounds,  buildings,  ma- 
chinery and  tools,  an  equality  at  least  may  be  assumed;  since  ad- 
vantages, in  some  particulars,  will  counterbalance  temporary  disad- 
vantages  in   others. 

"As  to  the  third  item,  or  the  article  of  wages,  the  comparison 
certainly  turns  against  the  United  States;  though,  as  before  ob- 
served, not  in  so  great  a  degree  as  commonly  supposed. 

"The  fourth  item  is  alike  applicable  to  the  foreign  and  to  the 
domestic  manufacture.  It  is,  indeed,  more  properly  a  result,  than  a 
particular  to  be  compared. 

"But,  with  respect  to  all  the  remaining  items,  they  are  alone 
applicable  to  the  foreign  manufacture,  and,  in  the  strictest  sense, 
extraordinaries;  constituting  a  sum  of  extra  charge  on  the  foreign 
fabric,  which  cannot  be  estimated  at  less  than  from  fifteen  to  thirty 
per  cent  on  the  cost  of  it  at  the  manufactory. 

"This  sum  of  extra  charge  may  confidently  be  regarded  as  more 


COMPETITIVE  TARIFF.  47 

than  a  counterpoise  for  the  real  difference  in  the  price  of  labor; 
and  is  a  satisfactory  proof  that  manufacturers  may  prosper,  in  de- 
fiance of  it,  in  the  United  States." 

Robert  J.  Walker,  in  his  Report  on  the  Tariff,  Wash- 
ington,  1845,  said: 

"That  no  duty  be  imposed  on  any  article  above  the  lowest  rate 
which  will  yield  the  largest  amount  of  revenue.*  *  *  That  the 
duty  should  be  so  imposed  as  to  operate  as  equally  as  possible 
throughout  the  Union,  discriminating  neither  for  or  against  any  class 
or   section.     *     *     * 

"While  it  is  impossible  to  adopt  any  horizontal  scale  of  duties, 
or  even  any  arbitrary  maximum,  experience  proves  that,  as  a  general 
rule,  a  duty  of  twenty  per  cent  ad  valorem  will  yield  the  largest  rev- 
enue. There  are,  however,  a  few  exceptions  above  as  well  as  many 
below  this  standard.     *     *     * 

"Stability,  both  in  the  tariff  and  the  currency  is  what  the  manu- 
facturer should  most  desire.  Let  the  tariff  be  permanently  adjusted 
by  a  return  to  reasonable  and  moderate  revenue  duties,  which,  even 
when  imposed  truly  and  in  good  faith  for  that  purpose,  will  yield 
sufficient  advantage  to  afford  reasonable  profits;  and  let  this  permanent 
system  (and  none  other  can  be  permanent)  be  established  and  ac- 
companied by  a  stable  currency,  and  the  manufacturer  in  a  series  of 
years,  will  derive  the  greatest  benefit  from  the  system.     *     *     * 

"No  prejudice  is  felt  by  the  Secretary  of  the  Treasury  against 
manufactures.  His  opposition  is  to  the  protective  system  and  not  to 
classes  or  individuals.  He  doubts  not  that  the  manufacturers  are 
sincerly  persuaded  that  the  system  which  is  a  source  of  so  much 
profit  to  them,  is  beneficial  also  to  the  country.  He  entertains  a 
contrary  opinion,  and  claims  for  the  opponent's  of  the  system  a  settled 
conviction  of  its  injurious  effects.  Whilst  a  due  regard  to  the  just 
and  equal  rights  of  all  classes  forbids  a  discrimination  in  favor  of 
the  manufacturers  by  duties  above  the  lowest  revenue  limit,  no 
disposition  is  felt  to  discriminate  against  them  by  reducing  such  duties 
as  operate  in  their  favor  below  that  standard.  Under  revenue  duties 
it  is  believed  they  would  still  receive  a  reasonable  profit — equal  to 
that  realized  by  those  engaged  in  other  persuits — and  it  is  thought 
they  should  desire  no  more,  at  least  through  the  agency  of  govern- 
mental power.  Equal  rights  and  profits,  so  far  as  laws  are  made, 
best  conform  to  the  principles  upon  which  the  Constitution  was 
founded,  and  with  an  undeviating  regard  to  which  all  its  functions 
should  be  exercised — looking  to  the  whole  country  and  not  to  classes 
or   sections." 

Now,  Hamilton,  the  protagonist  of  protection,  argu- 


48  COMPETITIVE  TARIFF. 

ing  from  the  premise  of  primitive  industrial  conditions  in 
America,  on  the  difTerence-in-cost-of-production  theory, 
found  that  a  protection  of  from  fifteen  to  thirty  per  cent 
over  the  cost  of  foreign  manufacture,  in  which  w^as  in- 
cluded the  expense  of  transportation  and  insurance,  was 
adequate  for  the  profitable  maintenance  of  manufactures 
in  America,  and  Walker,  in  his  statement  of  the  ideal  rev- 
enue tariff,  found  that  the  most  successful  average  revenue 
rate  was  twenty  per  cent  ad  valorem.  Hamilton's  aver- 
age would  be  twenty-two  and  one  half  per  cent  from  which 
should  be  deducted  charges  for  carriage  and  insurance. 
Surely  these  theories  are  not  so  inconsistent  as  to  prevent 
their  composition  into  a  tariff  of  moderate  and  perman- 
ent duties  on  imports. 

There  remains  a  difference  of  method  as  to  the  levy 
of  the  revenues  from  the  impost  on  importations.  Mr. 
Walker  favored  ad  valorem  duties  and  those  who  profess 
the  protective  theory  favor  specific  duties.  This  is  a  prac- 
tical question,  to  be  properly  determined  in  the  light  of 
the  experience  of  the  Treasury  department  as  it  relates 
to  the  collection  of  the  revenue.  The  settlement  of  this 
question  should  be  approached  without  prejudice — cer- 
tainly without  passionate  partisan  attachment  to,  or  antip- 
athy against  either  method.  There  are  strong  practical 
considerations  in  favor  of  specific  duties,  particularly  as 
to  commodities  valued  by  weight  and  bulk.  The  ad 
valorem  rates  seem  best  for  highly  finished  articles  of  mer- 
chandise, the  principal  value  of  which  consists  in  the  labor 
and  handiwork  expended  in  their  creation  and  production. 
It  may  be  that,  generally  speaking,  such  articles  as  seek 
a  market  at  prices  fixed  in  our  ports,  would  fall  in  the  first 
class  and  such  as  are  purchased  in  and  consigned  on  in- 
voices from  foreign  countries  at  prices  fixed  in  foreign 
markets  would  fall  within  the  latter  class.  Wool,  wheat, 
and  sugar  are  within  the  first  class,  and  the  finished  tex- 
tiles and  fabrics  of  the  useful  arts  are  within  the  latter 
class.  However  this  classification  is  a  mere  casual  notion 
which  is  only  suggested  as  a  possible  basis  for  the  compo- 


COMPETITIVE  TARIFF.  49 

sition  of  both  ad  valorem  and  specific  duties  in  the  tariff 
system. 

The  solution  of  the  tariff  question  is  a  task  for  states- 
men of  liberal  and  composed  views  v^hich  shall  exclude 
the  predatory  animus  which  has  scandalized  American 
tariff  legislation  since  the  repeal  of  the  Walker  tariff.  Abra- 
ham Lincoln  had  this  view  when  he  said  at  Pittsburg,  on 
February  15th,  1861,  while  on  his  way  to  the  Presidential 
inauguration  at  Washington : 

"Assuming  that  direct  taxation  is  not  to  be  adopted,  the  tariff 
question  must  be  as  durable  as  the  government  itself.  *  ♦  *  j 
therefore  recommend  to  every  gentleman  who  knows  he  is  to  be 
a  member  of  tjie  next  Congress  to  take  an  enlarged  view,  and  post 
himself  thoroughly  so  as  to  contribute  his  part  to  such  adjustment 
of  the  tariff  as  shall  produce  a  sufficient  revenue,  and  in  its  other 
bearings,  so  far  as  possible,  be  just  and  equal  to  all  sections  of  the 
country    and    classes    of    the    people." 

The  tariff  cannot  be  taken  out  of  politics.  It  is  the 
most  vital  question  in  our  federal  politics  and  can  only 
be  properly  settled  in  conformity  to  the  soundest  sense 
and  political  judgment  of  the  American  people. 

June  1,  1913, 


A  New  System  of  Federal  Banks. 


The  Congress  of  the  United  States  should  authorize 
the  creation  of  one  Federal  Bank  in  each  of  the  larger  cities 
and  clearing  centers  of  the  country,  the  capital  to  be  at 
least  one  million  dollars  with  no  limitation  on  the  amount 
which  may  be  subscribed  in  excess  of  this  sum — subscrip- 
tions to  be  open  to  the  public  without  reservation  or  limi- 
tation to  the  end  that  the  exclusive  franchise  of  the  bank 
in  any  particular  city  shall  not  become  a  monopoly  in  the 
hands  of  any  particular  cabal  of  bankers.  Subscriptions 
up  to  one  million  dollars  should  be  paid  at  par  at  time  of 
organization  and  subscriptions  subsequent  to  organization 
should  be  paid  at  par  plus  aliquot  part  of  the  surplus,  the 
figure  to  be  determined  by  the  dividend  of  the  capital  and 
surplus  by  the  number  of  then  outstanding  shares  of  stock. 
There  should  be  no  restriction  as  to  the  cities  in  which  the 
banks  may  be  organized — only  that  the  capital  be  at  least 
one  million  of  dollars  and  that  the  directors  reside  in  the 
city  where  the  bank  is  organized. 

Rural  federal  banks  might  be  permitted  with  less 
capital  in  smaller  cities  but  these  should  become  by  law 
branches  of  the  regular  federal  banks  which  should  hold 
the  reserves  of  the  branch  banks  to  which  they  severally 
are  related.  These  new  federal  banks  should  become  the 
fiscal  agents  of  the  federal  government  for  the  collection, 
disbursement  and  transmission  of  public  moneys.  They 
should  be  required  to  hold  adequate  legal  reserves  of  gold. 
The  present  system  of  national  banks  should  be  abrogated 
— the  national  banks  themselves  in  any  city  should  become 
merged  into  the  new  federal  bank  or  become  branches  of 
it  or  take  out  state  charters  as  they  may  severally  elect. 


FEDERAL  BANKS.  51 

There  should  be  but  one  branch  bank  in  any  city  except 
the  city  where  the  federal  bank  is  organized  in  which  a 
larger  number  of  branches  may  be  allowed.  In  the  mat- 
ter of  the  federal  charter  a  preference  in  organization  may 
be  accorded  to  the  oldest  or  largest  national  bank  in  any 
particular  city,  in  the  discretion  of  the  Secretary  of  the 
Treasury. 

Of  the  legal  reserves  of  these  federal  banks,  all  that 
part  not  held  in  vault  should  be  deposited  in  gold  in  the 
treasury  of  the  United  States  against  which  gold  certifi- 
cates should  be  issued  which  would  be  available  to  the 
banks  for  legal  reserve  requirements  as  well  as  gold  coin 
which  they  may  hold  in  vault. 

The  federal  treasury  should  maintain  at  Washington 
or  New  York  a  federal  clearing  house  and  discount  bank 
under  control  of  a  federal  board  with  which  all  the  federal 
banks  should  carry  balances  to  be  drawn  upon  for  New 
York  and  domestic  exchange  and  in  which  surplus  funds 
could  be  deposited  available  for  expeditious  transmission 
on  the  call  of  the  depositing  banks,  or  for  the  payment  of 
accepted  bills  drawn  by  one  federal  bank  on  another  in 
the  system. 

From  these  concentrated  deposits  extension  of  funds 
by  the  discount  of  bills  could  be  made  by  the  federal 
board  to  federal  banks  having  the  most  pressing  legitimate 
territorial  need  for  the  same.  The  federal  board  should 
be  an  agency  of  the  government  and  have  no  relation  to 
any  stock  corporation,  thus  insuring  consistent  and  inti- 
mate relations  between  the  federal  banks  and  the  treasury 
which  is  proper  in  view  of  the  fact  that  the  banks  would 
be  legally  constituted  fiscal  agents  of  the  government. 
Deposit  of  securities  to  cover  extensions  of  credit  and 
funds  should  be  required  pursuant  to  regulations  made  by 
the  federal  board. 

The  only  ground  upon  which  Congress  may  create 
banking  corporations  is  to  provide  fiscal  agents  for  the 
collection,  disbursement  and  transmission  of  government 
moneys,  and  there  is  no  good  reason  why  there  should  be 


52  FEDERAL  BANKS. 

more  than  one  fiscal  agent  in  any  one  city.  The  erection 
of  one  strong  federal  bank  in  each  commercial  center  to 
concentrate  banking  power  and  local  reserves  would  com- 
bine local  direction  and  control  with  concentration  at  im- 
portant clearing  centers.  By  this  means  the  7,500  national 
banks  would  become  integrated  and  unified  into  strong 
financial  institutions  with  centers  in  such  cities  as  Boston, 
New  York,  Philadelphia,  Baltimore,  Richmond,  Atlanta, 
New  Orleans,  Buffalo,  Cleveland,  Detroit,  Chicago,  Min- 
neapolis, Pittsburg,  Cincinnati,  Louisville,  Saint  Louis, 
Dallas,  Denver,  Kansas  City,  Omaha,  Salt  Lake,  Los 
Angeles,  San  Francisco,  Portland,  and  Seattle,  to  which 
other  cities  might  be  added  whenever  a  federal  bank  w4th 
an  initial  paid  up  capital  of  one  million  dollars  were  organ- 
ized in  any  such  city. 

The  association  of  these  federal  banks  in  a  clearing 
house  at  Washington  or  New  York  for  the  clearance  of 
domestic  bills  drawn  by  one  federal  bank  upon  another  in 
the  system,  together  with  a  discount  bank  to  facilitate 
advances  and  exchanges,  would  take  care  of  domestic  fed- 
eral clearings  and  would  gradually  absorb  for  the  system 
of  federal  banks  the  domestic  exchange  business  of  the 
country.  If  the  federal  banks  had  each  a  representative 
upon  a  Clearing  House  Commission  it  would  give  the 
federated  banks  administrative  control  of  their  concen- 
trated New  York  balances,  thus  providing  a  discount  mar- 
ket for  domestic  bills,  bearing  the  endorsement  of  a  federal 
bank,  to  the  exclusion  of  loans  to  facilitate  operations  on 
the  New  York  stock  market. 

It  is  presently  estimated  that  the  clearings  through 
the  New  York  banks  are  about  two-thirds  of  the  national 
clearings ;  that  is  to  say,  the  clearings  of  New  York  are 
twice  the  aggregate  clearings  of  all  other  American  cities. 
This  is  because  all  the  other  American  cities,  to  a  very 
large  extent,  clear  their  domestic  exchange  through  New 
York.  The  creation  and  maintenance  by  the  system  of 
strong  federal  banks  having  an  augmenting  and  unlim- 
ited capital,  of  a  Federal  Clearing  House  at  Washington 


FEDERAL  CURRENCY.  53 

or  New  York  under  the  patronage  and  visitation  of  the 
Treasury  Department  of  the  United  States,  would  re- 
strict New  York  banks  more  nearly  to  the  accommoda- 
tion of  New  York  business  and  would  otherwise  co-ordi- 
nate and  federate  the  banking  facilities  and  resources  of 
the  country  into  a  truly  federal  system. 

Federal  Currency. 

American  fiscal  experience  is  against  paper  bank  cur- 
rency. Our  banks  are  banks  of  deposit  and  discount,  not 
banks  of  issue  for  circulating  bills.  Even  the  states  by  the 
Federal  Constitution  are  forbidden  to  emit  bills  of  credit. 
What  we  in  America  need  is  neither  a  Canadian,  nor  a 
Scotch,  not  3,  Continental  system  of  banking,  but  rather 
an  extension;  development  and  perfecting  of  the  American 
clearing   system,*    together   with    an   enlarging   discount 


♦MUNICIPAL  CLEARING  HOUSES.— Every  encouragement 
should  be  given  to  the  development  of  the  American  clearing  system. 
Local  municipal  or  mercantile  clearing  houses  might  permit  the  regis- 
tration and  deposit  of  debtor's  bills  acknowledged  by  the  signature  of 
the  debtor  and  deposited  to  the  credit  of  the  person  or  firm  who  had 
earned  the  debt  by  extending  credit  of  money,  goods,  or  labor.  The 
deposit  of  credit  represented  by  these  acknowledged  bills  of  debt 
would  merge  and  pay  bills  of  debt  given  by  such  person  and  deposi- 
ted in  the  clearing  house  by  his  creditors.  Every  thirty  days  there 
should  he  a  proscription  of  petty  debtors  whose  unsecured  paper  in 
the  clearing  house  had  not  been  paid,  and  publication  should  con- 
tinue until  such  debtors  make  payment.  Persons  whose  delinquencies 
were  published  could  then  be  refused  credit  in  the  mercantile  and 
industrial  community,  and  would  have  to  extend  credit  of  labor  or 
goods  themselves  rather  than  seek  further  credit  from  others  while 
they  should  remain  on  the  proscribed  list.  The  dissipation  of  credit 
in  every  city  is  something  tremendous  and  calls  for  drastic  correction. 
In  one  prosperous  western  city  of  an  hundred  thousand  population, 
more  than  35,000  actions  of  law  have  been  brought  within  the  last  ten 
years  for  the  recovery  of  petty  mercantile  debts.  A  recurring  public 
proscription  of  petty  debtors  in  the  newspapers  or  otherwise  would 
contribute  to  the  creation  of  a  higher  sense  of  public  honesty  and 
duty  and  would  stimulate  the  acquisition  and  maintenance  of  personal 
creditable  standing  in  the  community.  To  facilitate  this  system  every 
person,  firm,  or  company  which  extends  credit  of  money,  goods,  or 
labor,  should  thereupon  take  a  bill  of  debt  subscribed  by  the  debtor 
with  the  stipulated  time  and  terms  of  payment.  This  of  course  would 
not  apply  to  cash  transactions.  Banks  never  extend  credit  without 
taking  written  evidence  of  the  debt,  and  if  such  practice  became  more 
general  in  those  who  extend  mercantile  and  industrial  credits,  collection 
litigation  would  be  much  simplified  and  diminished. 


54  FEDERAL  CURRENCY. 

market  for  legitimate  commercial  bills.  And  bankers'  bills 
and  acceptances,  like  those  of  other  mercantile  persons, 
should  be  redeemed  upon  maturity  by  payment  in  money 
of  the  realm  and  not  by  the  issue  of  bills  of  debt  to  con- 
tribute to  a  cumulative  inflation  of  paper  circulation. 

Federal  currency  should  be  of  two  kinds :  silver  cer- 
tificates in  the  denominations  of  1,  2,  3,  5,  and  10  dollars, 
and  gold  treasury  notes*  in  the  denominations  of  20,  50, 


*JEFFERSON  ON  16  TO  1.— Thomas  Jefferson  and  Andrew 
Jackson  believed  in  hard  money  of  gold  and  silver  coined  at  the  rela- 
tive value  of  sixteen  to  one.  When  it  was  suggested,  during  the  recent 
debate  on  the  Currency  Bill  in  the  House  of  Representatives,  that 
reserves  should  be  of  gold  and  not  of  gold  and  lawful  money,  quite 
a  number  of  silver  populists  were  at  once  on  their  hind  legs  to  protest 
against  the  insult  of  the  proposition. 

The  whole  trouble  with  the  double  or  bi-metallic  standard  is  with 
the  ratio  of  silver  to  the  gold  unit.  Congress  can  no  more  fix  a  double 
standard  of  value  than  of  weights  and  measures.  Jefferson  understood 
this  thoroughly.  In  his  Notes  on  the  Money  Unit  and  the  Coinage, 
he  said: 

"The  proportion  between  the  values  of  gold  and  silver  is  a  mer- 
cantile proj^lem  altogether.  It  would  be  inaccurate  to  fix  it  by  the 
popular  exchanges  of  a  half-Joe  for  eight  dollars,  a  Louis  for  four 
French  crowns,  or  five  Louis  for  twenty-three  dollars.  The  first  of 
these  would  be  to  adopt  the  Spanish  proportion  between  gold  and 
silver;  the  second,  the  French;  the  third,  a  mere  popular  barter  wherein 
convenience  is  consulted  more  than  accuracy.  The  legal  proportion 
in  Spain  is  sixteen  for  one;  in  England  fifteen  and  a  half  for  one,  in 
France  fifteen  for  one.  The  Spaniards  and  English  are  found  in  ex- 
perience to  retain  an  over  proportion  of  gold  coin,  and  to  lose  their 
silver.  The  French  have  a  greater  proportion  of  silver.  The  differ- 
ence at  market  has  been  on  the  decrease.  The  Financier  states  it  at 
present  as  at  fourteen  and  a  half  for  one.  Just  principles  will  lead 
us  to  disregard  legal  proportions  altogether;  to  enquire  into  the  market 
price  of  gold  in  the  several  countries  with  which  we  shall  be  principally 
connected  in  commerce  and  to  take  an  average  from  them.  Perhaps 
we  might  witb  safety  lean  to  a  proportion  somewhat  above  par  for 
gold,  considering  our  neighborhood,  and  commerce  with  the  sources 
of  the  coins  and  the  tendency  which  the  high  price  of  gold  in  Spain 
has  to  draw  thither  all  that  of  their  mines,  leaving  silver  principally 
for  our  and  other  markets.  It  is  not  impossible  that  fifteen  for  one 
may  be  found  an  eligible  proportion.  I  state  this,  however,  on  con- 
jecture only." 

In  discussing  this  same  question,  Jefferson  said  in  a  letter  written 
at  Paris  April  3,  1789: 

"I  believe  all  the  countries  in  Europe  determine  their  standard  of 
money  in  gold  as  well  as  silver.  Thus,  the  laws  of  England  direct 
that  a  pound  Troy  of  gold,  of  twenty-carats  fine,  shall  be  cut  into 
forty-four  and  a  half  guineas,  each  of  which  shall  be  worth  twenty-one 


FEDERAL  CURRENCY.  55 

100,  500,  and  1,000  dollars.  These  should  be  clean  bills 
printed  from  new  plates  such  as  proposed  by  the  late  Sec- 
retary of  the  Treasury,  in  order  to  facilitate  the  retirement 
of  the  existing  greenbacks  and  bank  notes  which  should  be 
taken  up  by  the  Treasury  in  exchange  for  the  new  cur- 
rency. 

The  silver  certificates  should  be  issued  in  exchange 
for  gold  or  government  bonds  as  demands  shall  be  made 
for  small  currency  to  supply  the  requirements  of  retail 
trade.     The  gold  notes  should  be  issued  in  exchange  for 


and  a  half  shillings,  that  is,  into  956^  shillings.  This  establishes  the 
shilling  at  5.518  grains  of  pure  gold.  They  direct  that'  a  pound  of 
silver  consisting  of  11  1-10  ounces  of  pure  silver  and  9-10  of  an  ounce 
of  alloy,  shall  be  cut  into  sixty-two  shillings.  This  establishes  the 
shilling  at  85.93  grains  of  pure  silver,  and,  consequently,  the  propor- 
tion of  gold  to  silver  as  85.93  to  5.518,  or  as  15.57  to  one.  If  this  be 
the  true  proportion  between  the  value  of  gold  and  silver  at  the  general 
market  of  Europe,  then  the  value  of  the  shilling,  depending  on  two 
standards,  is  the  same,  whether  a  payment  be  made  in  gold  or  silver. 
But  if  the  proportion  of  the  general  market  of  Europe  be  as  fifteen  to 
one,  then  the  Englishman  who  owes  a  pound  weight  of  gold  at  Am- 
sterdam, if  he  sends  the  pound  of  gold  to  pay  it,  sends  1043.72  shill- 
ings; if  he  sends  fifteen  pounds  of  silver,  he  sends  only  1030.5  shillings; 
if  he  pays  half  in  gold  and  half  in  silver,  he  pays  only  1037.11  shillings. 
And  this  medium  between  the  two  standards  of  gold  and  silver,  we 
must  consider  as  furnishing  the  true  medium  value  of  the  shilling. 
If  the  parliament  should  now  order  the  pound  of  gold  (of  one-twelfth 
alloy  as  before)  to  be  cut  into  a  thousand  shillings  instead  of  956^, 
leaving  the  silver,  as  it  is,  the  medium  of  true  value  of  the  shilling 
would  suffer  a  change  of  half  the  difference;  and  in  the  case  before 
stated,  to  pay  a  debt  of  a  pound  weight  of  gold,  at  Amsterdam,  if  he 
sent  the  pound  weight  of  gold,  he  would  send  1090.9  shillings;  if  he 
sent  fifteen  pounds  of  silver,  he  would  send  1030.5  shillings;  if  half  in 
gold  and  half  in  silver,  he  would  send  1060.7  shillings;  which  shows  that 
this  parliamentary  operation  would  reduce  the  value  of  the  shilling  in 
the  proportion  of  1060.7  to  1037.11." 

"The  proportion  between  the  value  of  gold  and  silver  is  a  mer- 
cantile problem  altogether.  *  *  Just  principles  will  lead  us  to  dis- 
regard legal  proportions  altogether;  to  enquire  into  the  market  price 
of  gold  in  the  several  countries  with  which  we  shall  be  principally 
connected  in  commerce  and  to  take  an  average  of  them." 

These  are  propositions  so  obviously  sustained  in  morals  and  math- 
ematics that  one  must  wonder  why  they  have  never  penetrated  the 
consciousness  of  William  Jennings  Bryan.  It  is  the  fluctuation  in  the 
market  price  of  silver  when  measured  by  the  gold  unit  (and  gold  is 
always  one  or  unit),  that  has  destroyed  the  stability  and  utility  of  a 
given  weight  of  silver  as  a  unit  of  account,  exchange,  or  estimation 
of  value.  Even  the  populists  should  understand  this  in  the  experience 
of  the  years  intervening  since  1896. 


56  FEDERAL  CURRENCY. 

gold  or  government  bonds,  and  the  surplus  of  gold  notes 
should  be  retired  as  received  by  the  treasury  in  payment 
of  taxes  or  otherwise  so  as  to  facilitate  the  conversion  of 
outstanding  bonds  into  gold  notes  with  a  view  to  the  re- 
tirement and  payment  of  the  public  debt.  Warrants  on 
the  treasury  for  the  current  expenditures  of  the  govern- 
ment could  be  paid  in  gold  or  currency  at  the  option  of  the 
holder  of  the  warrant.  Appropriations  of  public  money 
should  never  exceed  revenues,  and  warrants  should  always 
be  paid  out  of  revenues.  Indeed,  revenues  should  be  main- 
tained and  rather  augmented  and  appropriations  restricted 
in  order  to  permit  the  retirement  of  bills  received  in  the 
revenue,  for  the  purpose  of  reducing  the  public  debt,  and 
stimulating  the  conversion  of  bonds  into  bills.  The  gold 
notes  should  not  ordinarily  be  used  as  bills  of  credit  by 
the  government  except  as  they  shall  have  been  received 
in  payment  of  taxes.  The  creation  of  government  credits 
by  legislative  fiat  in  the  laying  of  taxes  and  duties  in  pay- 
ment of  which  treasury  notes  may  be  returned,  gives  these 
notes  a  more  stable  basis  than  ordinary  bank  bills,  and 
leaves  the  bank  resources  available  for  current  commercial 
discounts. 

For  emergency  currency  the  federal  board  upon  appli- 
cation of  a  federal  bank,  and  the  deposit  of  securities  which 
may  include  prime  commercial  paper  bearing  the  endorse- 
ment of  the  applicant  bank,  may  extend  to  such  bank  gold 
treasury  notes,  the  sum  extended  by  the  credit  to  bear 
interest  at  a  specified  rate  on  the  principal  sum  or  any 
unpaid  balance  of  the  same  so  long  as  the  loan  is  not  re- 
paid by  a  return  of  government  notes  or  by  payment  in 
gold.  This  would  afford  elasticity  in  the  currency  without 
multiplication  of  species  of  current  paper  and  keep  the 
currency  of  uniform  kind — gold  notes  of  the  United  States 
with  proper  and  efficient  means  of  contraction  and  ex- 
pansion of  the  circulation.  The  rediscount  of  prime  com- 
mercial paper  bearing  the  endorsement  of  a  federal  bank 
could  be  accommodated  by  an  extension  of  gold  notes,  an 
equivalent  amount  of  notes  to  be  retired  on  payment  of 


FEDERAL  CURRENCY.  57 

the  paper.  Gold  should  not  be  used  for  this  purpose.  If 
deposits  of  gold  are  made  in  federal  banks,  they  should 
take  the  form  of  deposits  on  such  security  as  the  Secretary 
may  require,  rather  than  the  purchase  or  discount  of  com- 
mercial paper.  It  should  be  the  policy  of  the  law  to  facili- 
tate the  deposit  and  holding  of  the  gold  capital  and  re- 
serves of  the  system  in  the  federal  treasury. 

There  ought  to  be  no  restriction  on  the  application  of 
postal  savings  deposits  for  the  purchase  and  retirement  of 
government  bonds.  There  is  no  w^ay  to  retire  the  billion 
dollars  of  bonded  government  debt  but  to  buy  it  or  pay  it. 
Sinking  fund  schemes  are  fatuous.  The  funding  of  debts 
by  provision  of  revenues  to  pay  stated  interest  charges 
establishes  public  credit,  but  will  never  merge  or  sink  the 
debt.  And  public  moneys  held  in  idle  sinking  funds  are  of 
neither  public  nor  private  utility. 

This  paper  is  a  general  sketch,  the  suggestions  of 
which  would  have  to  be  refined  and  elaborated  for  com- 
position into  a  general  system. 

October  1,  1913. 


/ 


Outlines  for  the  Organization  of 
Local  Government. 


"There  are  two  subjects,  indeed,  which  I  shall  claim  a  right  to 
further,  as  long  as  I  breathe,  the  public  education  and  the  subdivision 
of  Counties  into  Wards.  I  consider  the  continuance  of  republican 
government  as  absolutely  hanging  on  those  two  hooks." — Thomas 
Jefferson. 

Political  Divisions. 

Divide  all  the  territory  of  the  State,  within  County 
boundaries  however,  into  municipalities  to  which  shall  be 
assimilated  the  township  and  city  governments,  the  result 
being  a  compounding  of  the  townships  ,  and  cities  into 
common  territorial  limits  which  shall  cover  all  the  territory 
in  the  counties  as  the  counties  cover  all  the  territory  in 
the  State. 

The  method  of  division  of  territory  among  these  mu- 
nicipalities to  be  as  follows :  In  a  given  county  take  the 
centres  of  population  as  concentrated  in  hamlets,  villages, 
towns  or  cities,  and  expand  the  territorial  limits  outward 
from  these  centres  until  the  limits  or  boundaries  meet  at 
convenient  lines  for  local  administration. 

The  municipalities  are  to  be  classified  or  graded  into 
hamlets,  villages,  towns  and  cities  according  to  population 
and  the  respective  powers  of  each  class  are  to  be  deter- 
mined by  legislation.  Give  the  municipalities  generally 
control  of  all  local  police,  including  constabulary,  sanita- 
tion, education,  care  of  paupers,  care  of  local  roads  and 
streets  and  all  the  functions  now  exercised  by  townships 
and  cities  and  by  County  Commissioners  where  the  func- 
tions of  the  latter  duplicate  the  powers  of  cities  and  towns 
as  at  present  constituted. 

These  municipalities  are  to  be  given  full  local  gov- 
ernment with  administration  by  local  elective  boards  or 


LOCAL  GOVERNMENT.  59 

commissions*  having  direct  local  responsibility  to  the  peo- 
ple. The  small  municipalities  may  have  their  town  meet- 
ing and  the  larger  municipalities  a  representative  assem- 
bly vvrith  legislative  powers.  Ordinances  upon  petition 
may  be  referred  to  a  vote  of  the  people  for  confirmation 
or  rejection. 

Taxation. 

In  the  matter  of  taxation  the  municipalities  are  to 
have  the  exclusive  power  to  tax  buildings  and  improve- 
ments on  land,  to  lay  poll  taxes  and  taxes  on  occupations 
and  professions,  and  to  license  trade  and  business.  The 
municipalities  are  not  to  have  the  right  to  tax  land  except 
for  local  improvements  abutting  on  the  land  assessed,  such 
as  taxes  for  roads,  pavements,  sewers,  water  mains  and 
other  highway  improvements.  The  people  by  special 
election  to  have  the  right,  however,  to  lay  a  tax  on  land 
for  the  erection  of  permanent  municipal  buildings  and 
structures. 

Land  values  are  to  be  taxed  at  a  uniform  rate  through- 
out the  State  for  the  general  benefit  and  use  of  the  State 
and  for  the  support  of  the  county  and  state  administration. 
The  State  treasury  is  to  support  the  whole  judiciary  sys- 
tem, the  current  cost  of  public  education  (not  including 
construction  of  school  houses  for  local  or  primary  schools) 
and  such  other  appropriations,  the  benefit  of  which  would 
be  generally  distributed  over  the  State. 

The  result  of  this  arrangement  would  be  that  farmers 
and  occupants  of  agricultural  lands  would  all  belong  as 
citizens  to  their  nearest  towns  and  would  participate  di- 
rectly in  their  local  government.  The  taxes  presently 
paid  on  farm  improvements  would  contribute  to  the  sup- 


*The  old  form  of  city  government  constituted  of  a  mayor  and 
aldermen  is  a  relic  of  medisevalism  come  down  to  us  from  the  walled 
cities  of  the  middle  ages  when  cities  were  independent  bodies  politic 
having  no  political  relations  to  the  feudal  social  structure  by  which 
they  were  surrounded.  But  we  have  no  distinctive  bourgeoisie  or 
peasantry  in  the  United  States,  and  the  cities  being  but  municipal 
agencies  of  the  State  governments,  they  should  be  assimilated  in 
government  to  the  form  of  the  counties;  that  is  to  say,  the  adminis- 
trative affairs  of  the  cities  should  be  placed  in  the  direction  of  a  mod- 
ern executive  board  or  commission. 


60  LOCAL  GOVERNMENT. 

port  of  these  towns  and  the  farmers'  land  and  land  values 
would  not  be  taxed  for  local  or  city  administration  but  only 
at  a  uniform  state  rate  in  common  with  all  land  and  land 
values  for  general  state  and  county  purposes.  A  city  in 
its  physical  aspects  is  a  collection  of  houses,  business 
blocks,  hotels,  and  other  buildings,  the  presence  of  which 
with  the  people  who  inhabit  them  render  necessary  police 
and  fire  protection,  light,  sewers,  waterworks,  pavements 
and  other  public  service.  It  is  proper  that  the  taxes  levied 
from  such  buildings  and  improvements  should  be  used  for 
the  maintenance  of  the  public  service  required  by  the  pres- 
ence of  such  buildings  and  appurtenant  improvements; 
the  land  values  created  by  such  accumulated  improve- 
ments and  population  to  be  taxed  at  a  uniform  state  rate 
for  the  general  good,  public  education,  administration  of 
justice  and  such  appropriations  for  local  purposes  as  may 
be  uniformly  distributed  throughout  the  State  in  the  dis- 
cretion of  the  legislature. 

Elections.* 

Municipal  elections  are  to  be  by  ballot  on  the  plan  of 
the  Massachusetts  ballot.       The  ballot  is  to  contain  the 


*In  the  game  of  practical  politics  it  is  the  ballots  in  the  box  that 
count.  We  are  ruled  by  major  numbers.  In  the  older  day  we  were 
ruled  by  major  force.  And  the  transition  from  the  rule  of  force  to 
the  rule  of  numbers  is  not  necessarily  a  transition  from  the  rule  of 
might  to  the  rule  of  right.  For  there  is  no  difference  in  principle 
between  major  numbers  and  major  force,  because  the  human  units 
being  equal,  the  greater  number  would  be  the  greater  force.  It  is 
more  convenient,  however,  to  count  heads  than  to  fight,  as  thus  there 
is  a  saving  of  those  who  would  otherwise  be  felled  or  maimed  in  the 
conflict.  And  so  it  may  be  said  that  the  rule  of  the  majority  of  voices, 
or  of  polls,  or  of  ballots,  is  in  its  results,  only  the  more  righteous,  to 
the  extent  that  reason  and  judgment  are  exercised  by  a  sufficient 
number  of  voters  to  hold  the  balance  of  power  between  passionate 
contending  factions. 

A  political  campaign  has  become  a  battle  of  contending  factions 
and  in  some  of  its  aspects  a  great  sporting  event  for  the  delectation 
of  the  populace.  An  election,  however,  is  properly  a  sober  judicial 
act  of  selection  of  magistrates  with  a  view  to  promoting  the  public 
welfare.  And  there  should  be  less  of  sport  and  more  of  judgment 
on  the  part  of  electors  before  our  frequent  elections  will  best  fill  their 
proper  office  for  purification  and  succession  in  our  representative  in- 
stitutions. 

There  is  great  need  of  men  with  public  views,  and  public  con- 
sciences, and  public  minds,  which  in  the  determination  of  public 
policy  shall  exclude  the  selfish  motives  which  actuate  and  impel  men 


LOCAL  GOVERNMENT.  61 

names  of  persons  duly  nominated  for  the  respective  offices 
but  shall  not  contain  any  partisan  name,  emblem,  or  device. 

The  names  of  persons  holding  of^ce  are  to  go  on  the 
ballot  as  candidates  for  re-election  as  of  course.  Nomina- 
tions may  be  made  by  party  conventions  as  under  existing 
lav^.  The  State  is  not  to  interfere  v^ith  the  free  assemblies 
of  the  people  for  political  purposes  or  for  the  nomination 
of  candidates  for  public  ofBce,  and  on  the  other  hand,  the 
State  is  not  to  promote  the  permanent  division  of  the 
people  into  factions  or  parties  by  affording  special  facilities 
for  voting  partisan  slates  and  tickets. 

Political  parties  are  to  rest  upon  the  free  conventions 
of  the  people  and  the  State  is  to  promote  freedom  of  elec- 
tion by  requiring  the  voter  to  make  up  his  own  ticket  so 
that  his  ballot  represents  the  result  of  selection  and  judg- 
ment so  far  as  this  may  be  induced  by  requiring  the  voter 

in  private  affairs.  And  there  can  be  no  reward  for  such  men  unless 
it  be  that  public  appreciation  and  recognition  which  the  public  has 
never  yet  adequately  rendered  for  faithful  public  service.  A  United 
States  Senator  of  wide  political  observation  and  experience  once  said 
to  me,  that  the  people  in  the  mass  did  not'  sensibly  appreciate  faithful 
and  efficient  service  in  their  public  men  and  did  not  rally  to  the  sup- 
port of  faithful  public  servants  at  critical  times.  But  let  a  Congress- 
man, for  example,  offend  some  powerful  private  or  selfish  interest  and 
it  at  once  has  an  acute  sense  of  being  hurt  and  would  forthwith  begin 
to  contrive  ways  and  means  of  vindication  and  revenge.  And  one  of 
the  favorite  methods  was  to  go  into  the  Congressional  district  of  the 
offending  Congressman  and  induce  some  perfectly  good  man  to  enter 
the  field  for  the  nomination  against  the  man  whom  the  interests  de- 
sired to  rebuke  and  humiliate.  They  would  begin  by  printing  com- 
plimentary notices  in  the  newspapers  in  the  district.  The  vanity  and 
pride  of  the  man  they  desired  to  use  would  be  worked  upon  by  the 
methods  of  flattery,  and  all  the  time  this  good  man  would  not  realize 
that  he  was  being  supported,  not  for  his  own  sake,  but  only  to  defeat 
and  rebuke  a  Congressman  who  had  given  offense  to  special  interests. 
What  we  need  are  free  elections — free  not  only  from  intimidation, 
duress,  and  fraud,  but  free  from  passion  and  prejudice  without  which 
no  free  or  honest  judgment  may  be  had.  The  embracery  of  electors 
by  attempting  to  influence  them  by  promises,  money,  entertainment  or 
entreaties  should  not  be  permitted.  The  solicitation  of  votes  by  offers 
of  free  carriage  to  the  polling  places  has  been  brought  to  great  abuse 
in  many  cities.  People  attend  to  their  private  affairs  without  such 
assistance  and  certainly  every  upright  citizen  should  attend  to  his 
serious  public  duty  without  such  assistance. 

We  finally  have  under  the  commission  form  of  city  government 
a  free  ballot  upon  which  each  elector  may  record  his  individual  judg- 
ment and  voice,  and  that  this  be  honestly  done  affords  assurance  that 
the  result  of  the  election  will  indicate  the  consensus  of  the  best  civic 
opinion  of  the  people. 


62  LOCAL  GOVERNMENT. 

to  mark  the  name  of  each  person  for  whom  he  votes. 

The  policy  is  to  encourage  the  people  to  use  the  fre- 
quently recurring*  elections  not  primarily  to  bring  about 
rotation  in  office,  but  rather  to  return  good  men  to  office 
and  retire  bad  men  from  office.  As  a  general  rule  there 
should  be  no  change  except  to  improve.  This  process  of 
intelligent  selection  will  induce  higher  and  better  public 
service,  will  promote  fidelity  in  office  and  consistency  and 
stability  in  matters  of  policy.  Public  appreciation  and 
approval  of  fidelity  and  efficiency  in  office  would  have  great 
potency  for  the  improvement  of  the  public  service.  But 
this  is  a  matter  of  morals  rather  than  of  law. 

Counties. 

The  counties  are  to  be  maintained  for  judiciary,  state 
police  and  supervisory  purposes,  to  promote  uniformity, 
and  system  in  education,  construction  of  roads,  etc.  The 
counties  are  to  be  agencies  for  the  administration  of  State 
law  and  police.  The  county  officials  are  to  be  subordinated 
to  the  state  officials  for  the  collection  of  the  land  tax  and 
for  the  state  administration  generally.  The  county  treas- 
urers are  to  be  the  representatives  of  the  state  treasurer, 
the  county  superintendents  of  education  are  to  be  the  rep- 
resentatives of  the  state  superintendent  of  education;  the 
county  road  engineers  are  to  be  the  representatives  of  the 
state  engineer.  The  sheriff  is  to  be  the  highest  adminis- 
trative officer  in  the  counties  and  he  is  to  be  the  represen- 
tative of  the  Governor.  These  county  officers  may  be 
elected  in  the  counties  or  preferabl}'-  appointed  by  the  Gov- 
ernor with  the  advice  and  consent  of  the  Senate.  This 
would  enlarge  the  administrative  powers  of  the  Governor, 
and  make  him  a  real  executive,  responsible  to  the  legisla- 
ture and  the  people.  The  Governor  should  likewise  appoint 
the  state  administrative  officials  and  the  functions  and 
powers  of  all  these  should  be  particularly  defined  by  law. 

The  plan  is  to  make  the  municipalities  local,  self- 
governing  units  with  a  large  measure  of  direct  power  in 
the  inhabitants  and  to  make  the  counties  agents  of  the 
State  administration  for  supervision,  direction,  and  unifi- 


LOCAL  GOVERNMENT.  63 

cation,  and  for  the  execution  of  State  laws  as  distinguished 
from  local  ordinances. 

Judiciary. 

In  each  municipality  have  one  or  more  civil  magis- 
trates as  population  or  business  may  require,  to  enforce 
local  penal  ordinances,  to  sit  as  committing  magistrates 
in  felony  cases,  and  to  have  civil  jurisdiction  in  actions  at 
law  up  to  $500.00  or  $1,000.00  in  larger  cities.  The  mag- 
istrates should  be  paid  salaries  and  not  fees  as  has  been 
customary  with  justices  of  the  peace,  whose  ofifice  is  to  be 
replaced  by  that  of  the  magistrates.  Appeals  should  lie 
in  all  cases  to  the  higher  county  or  circuit  courts.  The 
whole  system,  including  the  Supreme  Court  of  Appeals, 
Circuit  Courts  of  general  original  jurisdiction.  County 
Courts  of  probate  and  administration,  and  local  magis- 
trates courts  to  be  formed  into  a  co-ordinating  system  of 
judicature. 

Legislature. 

The  House  of  Representatives  is  to  be  elected  by  pop- 
ular suffrage  from  the  municipalities.  Each  municipality 
to  have  at  least  one  representative  and  the  larger  ones  to 
have  apportioned  to  them  a  number  according  to  a  certain 
ratio  of  population.  These  are  to  be  elected  at  large  or 
from  separate  districts  in  the  municipality  as  the  munici- 
pality shall  determine. 

The  Senate  is  to  be  a  select  body  elected  by  the  free- 
holders of  the  counties,  apportionment  to  be  to  the  coun- 
ties according  to  population.  This  would  place  the  Senate 
upon  a  different  footing  from  the  House, — make  it.  a  con- 
servative revisory  body,  and  representative  of  the  tax- 
payers, thus  giving  full  recognition  to  the  principle  of  the 
reciprocal  relation  between  representation  and  taxation. 

The  principle  of  procedure  would  be  to  adapt  existing 
local  institutions  and  functionaries  into  the  general  scheme, 
— the  detail  to  be  worked  out  in  the  State  Constitution  and 
by  legislation. 

Tune  1,  1912. 


BERKELEY  ^I^KAET, 

THIS  BOOK  IS  DUE~^  j^,  ^^^^ 

STAMPED  EEl^w      ST  "^^^ 


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